ANNUAL REPORT 2014

Message from Management
Message from Business
Management Strength

SocialActivities /TopicsCorporate
GovernanceYoshikazu Uemura

Corporate
Data

1

Financial
SectionFunai Electric Group will pursue further growth
by implementing global operational reforms
under a new growth strategy.

Management Discussion
and Analysis

President and CEO

Message from Management

1
Three Elements of
the Growth Strategy

Strengthening
Existing Businesses

3

Expanding into
New Markets

Expanding into
New FieldsbExpansion into the
Global Market

Recovery of earning
power of existing
businesses

Initial emphasis on the U.S.
Sequential expansion into
emerging countries such as
Central and South America

Growth potential fromexpansion into new
businesses

Existing products +new products

New production site
in the Philippines
Abundant labor supply

Accelerate
Receipt of OEM
Orders in ALL
Businesses.

English-speaking country*1 OEM (Original Equipment Manufacturer)

Future Growth Strategy

2

Corporate
Data

In addition to such measures, Funai has developed a growth strategy withthree key elements: “strengthening existing businesses,” “expanding into
new markets,” and “expanding into new fields.” A number of initiatives are to
be implemented centered around these elements.
To strengthen existing businesses, we will work to increase screen size
and add high value to LCD TVs by introducing TVs 60 inches and up andsupporting 4K TV*2. In addition, we will strengthen our response to networking and meticulously respond to needs in the global market.

Financial
SectionIn recent years, amid worldwide demand expansion, the home electronic
appliance market has had to adjust to a disruptive and unprecedented transformation characterized by increased competition that drives product prices
down, the rapid spread of smartphones, and other important developments.
In the fiscal year ended March 31, 2014 (fiscal 2013), although the rapid
spread of smartphones and tablets continued, demand for mobile phones,
personal computers, digital still cameras, DVD and Blu-ray Disc (BD) related
products, and other conventional products stagnated.
In this environment, the Funai Electric Group’s consolidated net sales
increased year on year. The trend toward larger TV screens, favorable salesleading up to the peak year-end sales period in the U.S. and sales expansion
in Mexico led to an increase in sales of LCD TVs, the Group’s mainstay
product. In addition, higher orders for printers from OEM*1 customers, entry
into the ink cartridge business, and the full-year contribution from Philipsbrand audio accessories, which began shipping in September 2012, also
contributed to the revenue increase.
The Group faced difficulties on the profit front, however, recording
losses as profitability at sales subsidiaries P&F USA, Inc. and P&F
MEXICANA, S.A. DE C.V. deteriorated as a result of losses attributable tofactors including disposal of inventory of Philips-brand LCD TVs and audio

Management Discussion
and Analysis

accessories in North America.
As a result of these developments, although consolidated net sales infiscal 2013 were ¥234,043 million, up 21.9% year on year, operating loss
was ¥5,466 million and net loss was ¥6,745 million.
In these conditions, the Group has initiated global measures to improveearnings. The reason for the losses was inefficiencies in the distribution andservice systems of overseas sales subsidiaries. We are working to boost
earnings by increasing efficiency these operations and strengthening purchasing management for audio accessory products.

Corporate
GovernanceBusiness Environment and Operating ResultscPlant Site
Optimization

SocialActivities /Topics2aBusiness Portfolio
Restructuring

Message from Business
Management Strength

Future Growth Strategy

Message from Management

Management Discussion
and Analysis
Financial
Section*4 The Huang Jiang Plant is a consignment production plant.

Corporate
Governance*2 TVs with display panels offering four times the resolution of full high-definition TVs (1,080 pixels)*3 see page 16

SocialActivities /Topicscartridges are produced, the Philippines Plant is scheduled to start operatingin 2014 as a new printer production plant.
We will also further improve the Funai Production System (FPS), our proprietary manufacturing system, to supply the global market with high-quality
and high-value products. In addition, we will actively engage in consignment
production on an OEM basis and pursue alliances in all of our businesses
and markets.
Furthermore, to ensure that research and development more accurately
and rapidly respond to market trends around the world, we strengthened theglobal development structure by opening a new U.S. development base in
Lexington, Kentucky in addition to our overseas bases in Malaysia, China,
and Singapore.

Funai acquired the inkjet-related technologies and assets of U.S.-based
Lexmark International Inc. in April 2013. We plan to engage in in-house development of inkjet printers and subsequently introduce products to the market.
To expanding into new markets, we will make forays into markets withhigh growth potential such as Central and South America while continuing
efforts in North America, which has long been a key market.
To expand into new fields, we will expand into post-AV sectors with technologies, developed over years by us. Key products such as wireless chargers and in-vehicle displays for the B2B market will be the core of ouradvance. To facilitate early commercialization, the electric walking assistancecart business was spun out in July 2014.*3

Message from Business
Management Strength

Under the new strategy, Funai Electric Grouphas promoted various measures focusing on
achieving earnings recovery over sales expansion.

Optimizing Production
The Funai Electric Group has positioned fiscal 2014 as an important year for
deciding its future strategic direction and has adopted a policy of focusing
on earnings recovery over sales expansion.
The Group will create a new growth path by mounting an all-out effort toimplement the previously mentioned growth strategy with three3

Corporate
Data

Outlook for the Fiscal Year Ending March 31, 2015

To further boost our manufacturing capabilities, the wellspring of Funai’s
strengths, we will undertake the optimization of plant locations.
In 2013, we concentrated production of LCD TVs, DVD-related products
and printers into two plants in Huang Jiang*4 and Zhong Shan, China andexpanded production facilities at the Thai plant, making it the main LCD TVs
production plant. In the Philippines, in addition to the Cebu Plant where ink

Message from Management
Cash Dividends per Share(¥)
Years ended March 31

2014

2015
(Forecast)

192,008

234,043

200,000

Operating Income(Loss)(5,273)(5,466)500

Net Income (Loss)(8,543)(6,745)

10

Net Sales

40

2010

2011

2012

35

35

2013

2014

Financial
SectionWe look forward to receiving the continued support of our stakeholders in
the coming years.

Management Discussion
and Analysis

maintaining stable dividends while strengthening the business foundation. In
implementing the dividend policy, we consider factors such as the businessenvironment and use as a specific criterion a ratio of dividends to consolidated net assets of 1.0%. In principle, the Group pays a year-end dividend
once a year. If the Group pays an interim dividend, it makes a publicannouncement in advance.
In accordance with the above policy, the Group declared an ordinary dividend of ¥35 per share as the year-end dividend for fiscal 2013, the same as
the previous term. Although the dividend for fiscal 2014 has not yet been
determined, we will continue to strive to enhance corporate value and provide returns to the shareholders.

Corporate
Governancekey elements: ”strengthening of existing businesses,” ”expansion into newmarkets,” and ”expansion into new fields.” To realize this strategy, we will
undertake business portfolio restructuring, expansion into the global market,
and plant site optimization.
In our Audiovisual equipment category and other existing businesses, wewill undertake earnings improvement by boosting cost competitiveness andintroducing new products in developing countries and other markets thatoffer prospects for steady growth with appropriate timing. In the informationequipment category, which includes printers and ink cartridges, we willdevelop and introduce products that meet diverse needs and work toincrease sales of highly profitable commercial and industrial ink cartridges.
By promptly and steadily implementing such measures, the Group will
aim to achieve fiscal 2014 targets of net sales of ¥200,000 million (down
14.5% year on year), operating income of ¥500 million, and net income of¥10 million. We plan to link this profit recovery to renewed growth for theFunai Electric Group.

40

SocialActivities /Topics2013(Years ended March 31)

50

Millions of Yen

Message from Business
Management Strength

Key Operating Results and Forecasts

Corporate
Data

Basic Policy on Profit Distribution and Dividends
The Funai Electric Group considers providing returns to shareholders animportant management priority and has adopted a basic policy of

President and CEO

4

Yoshikazu Uemura

What’s Funai?

78%

Constantly Evolving Business Operations

DVD • BD

61% 17%

Information
Equipment

Consolidated Net Sales ¥234 billion(March 31, 2014)

Since its founding in 1961, Funai has accurately identified the constantly changing needs of the times andcombine superb cost performance with high quality.
Today we do business worldwide in three general product fields. The Audiovisual equipment segment consists of the

Financial
Sectionapplied a unique perspective to create digital home electronic appliances thatManagement Discussion
and Analysis

14%

Corporate
Governance

OthersSocialActivities /Topics8%

BusinessStrength

Business Areas

TV

Audiovisual Equipment

Message fromManagement

Sales Composition by Products

Display Business, which manages our main products, LCD TVs, and the Digital Media Business,
Office Solutions Business, which focuses on inkjet printers, laser beam printers, and peripheral equipment.
The Others segment, includes audio accessory products and receiver-related products.
We will seek greater growth to transform Funai into a globally outstanding business group by continuing to
supply the world with products that meet the needs of the times and renewing our focus on speedin business activities, a trademark of the company since its founding.
5

Corporate
Data

which handles products related to DVDs and Blu-ray Discs (BDs). The Information equipment segment comprises theWhat’s Funai?
Message fromManagement

Strength 1

DesignBusinessStrength

Business Strengths
Unique Strengths that Define Funai Electric GroupStrength 1

Production

Pursuit of Cost Performance throughInnovations from the Design Stage

Strength 3

Marketing Products around the World under
Multiple Brands Meeting Global Needs

Management Discussion
and Analysis

Continuous Productivity Improvement
through the Funai Production System (FPS)

Sales

Corporate
Governance

Strength 2Strength 3

SocialActivities /TopicsStrength 2

Financial
SectionCorporate
Data

6

What’s Funai?
Message fromManagement
BusinessStrength

Brand Competence
A Global Brand

SocialActivities /TopicsCorporate
GovernanceManagement Discussion
and Analysis

Sales area:	North America, Europe,
India, Thailand

Magnavox*2

Sales area: North America,
Central andSouth America

Sales area: North America

Proven.
TrustedTimeless

Corporate
Data

Philips*1

UserFriendly

Financial
Section

SimpleSales area: North America

Sales area: Japan

*1, *2 : See P53 “ Important Contracts”
7

Sales area: Japan

Sales area: Japan

What’s Funai?

Europe

3%

16%

12%

BusinessStrength

Sales Composition byGeographical Area
Consolidated Net Sales ¥234 billion(March 31, 2014)

Corporate
GovernanceNorth
America

Brands and Operations that Span the Globe

69%*Including sales of Central and South America

EuropeAsia
andothers*Financial
SectionNorth
AmericaManagement Discussion
and Analysis

Global Operations
Japan

SocialActivities /TopicsFunai supplies markets and customers around the world with products that deliver
excellent cost performance and high quality. We have seven brands that we selectively deploy according to individual market situations and product characteristics.
We are developing a robust global business structure in which domestic and overseas group companies develop, manufacture, and market products around theworld, supported by our competitive brands.
We market LCD TVs, our mainstay product, under five brands (FUNAI, Philips,
Magnavox, Emerson, and DX BROADTEC) and DVD/BD-related products under
three brands (FUNAI, Philips, and DX BROADTEC) worldwide. In addition, we sellantennas and other receiver-related products under the DX ANTENNA brand andLED sensor lights and other products under the DX DELCATEC brand. We also
manufacture products under customers’ brands under OEM agreements.
We plan to vigorously develop the printer business, strengthened by the acquisition of Inkjet-related assets in 2013, using our own brands.

Japan

Message fromManagement

Asiaand others*

Corporate
Data

8

Design
Message fromManagement
BusinessStrength

Overseas R&D members
now 37% of total R&D staff

SocialActivities /TopicsCorporate
Governance

Global Development Bases

Financial
SectionRatio of Overseas R&D Staff

25%

32%

37%

2012

2013

2014

9

Corporate
Data

Singapore(Years ended March 31)

Management Discussion
and Analysis

China
Malaysia

USA

Japan

Design
Message fromManagement

SocialActivities /TopicsDesign Capabilities that Generate World-Class Cost CompetitivenessIn-house
production ofcore items

Financial
SectionImproving Cost
Competitiveness
Reducing
the numberof parts

Overseas
onsite design

Corporate
Data

10Management Discussion
and Analysis*OLB: Outer Lead Bonding

Three Unique Strengths in Design

Corporate
GovernanceFunai’s world-class cost performance is the result of three unique strengths: in-house production of core
items, reducing the number of parts, and overseas onsite design. Our engineers are passionately committed to designing products that are easy to assemble and rigorously engage in design activities withproductivity improvement in mind, such as reviews of parts and materials used, investigation of procurement methods, and process reduction.
One example of this is in-house production of LCD modules, a key component of LCD TVs.
Specifically, we have achieved parts reduction by procuring LCD-cell panels without backlights andengaging in design rationalization to integrate drive circuit design, backlight design, and chassis design.
Furthermore, we perform OLB* processing (production of liquid crystal modules) in our plants. In thisway, we pursue rationalization for the overall optimization of everything from parts to finished products.
In addition, we are offshoring product development by transferring design work previously performed
in Japan to development bases in Malaysia, China, Singapore, the U.S. This has contributed significantly
to cost performance improvement.
Funai will continue to pursue world-class cost competitiveness by applying a global perspective torecruitment and development and continuing our tireless efforts and innovations to reduce product cost.

BusinessStrength

Achieving formidable global cost competitivenessProduction
Message fromManagement
BusinessStrength

SocialActivities /TopicsSeven manufacturing facilities
in Five countries

Corporate
Governance

Global Development BasesManagement Discussion
and Analysis

Overseas Production Ratio(March 31, 2014)• LCD TVs
• DVDs, BDs• Printers

Japan

China*
ThailandFinancial
Section1%
Japan• LCD TVs

Other

• Other

Philippines(Under construction)• Printers

Philippines (Cebu)

Mexico*China• LCD TVs

61%
Overseas99%• Ink Cartridges*Consignment production plants (China accounts 1 of 2 locations)11

Corporate
Data

38%

Production
Message fromManagement
BusinessStrength

Optimized quality, cost and delivery

SocialActivities /TopicsOur Quest to Improve Productivity with FPS and Optimize Production

Management Discussion
and Analysis

Apply stressto production
line

Resolve

FPS

Corporate
Data

Introduce
improvement

Identify
problemFinancial
Section

12

Funai Production System (FPS)

Corporate
GovernanceFunai constantly strives to improve productivity to ensure that our products offer high quality, ease ofuse, and excellent cost performance. At the heart of this effort is the Funai Production System (FPS), ourproprietary manufacturing system. With the FPS, we deliberately stress the production line, such as
reducing the number of operators or increasing conveyor belt speed, to identify problems by causing
the line to stop and implement improvements. By repeating this cycle, we strive for continuous productivity improvement. We consider the FPS a core group competence to be further developed and perfected in the coming years.
Since fiscal 2011, we have been shifting production capacity from production bases in China, where
we had been producing 90% of our products, to other locations in Asia. In April 2013 we concentrated
production activities in China into two plants in Huang Jiang (a consignment production plant) andZhong Shan. In July 2013 we expanded our Number 3 Plant in Thailand, increasing production capacity
in that country. In addition, we are building a plant on Luzon Island in the Philippines as a new production base scheduled to start operation in 2014. In April 2013 we acquired from Lexmark an ink cartridge
plant located on Cebu Island and have begun in-house production of ink cartridges.
By reorganizing our production bases and increasing the local procurement ratio by concentratingproduction in optimal locations, we will work to achieve end-to-end production efficiency improvement
and cost reduction in processes extending from procurement of parts and materials to delivery of finished products to our customers.

SalesCorporate
GovernanceManagement Discussion
and Analysis

Japan

Philips
Magnavox

Share of LCD TV Shipments
in North America(CY2013)

EuropeUSA
MexicoIndia
A(Korea)
OthersThailandand India

Columbia

24%

B(U.S.)
C(Korea)

10%

FUNAI
( Japan)

16%

Philips13%

Source: NPD DisplaySearch

Sales Branch

13

Central andSouth America

Corporate
Data

37%

Financial
SectionJapan

SocialActivities /TopicsNorth America

PolandBusinessStrength

Global Sales Bases

Germany

Message fromManagement

Top-three LCD TV sharein North America

SalesMessage fromManagement
BusinessStrength

Pointing to future success in emerging markets

SocialActivities /TopicsA Global Multi-Brand Strategy
Sales by Geographical Area
(Years ended March 31)

Management Discussion
and Analysis(¥ Billion)

234.0
38.1

192.0

27.0
7.7

35.9
16.6
6.2

Financial
Section

161.2

133.3

North America

EuropeCorporate
Data

2013

2014
Asia and others**Including sales of Central and South America

14

Corporate
GovernanceFunai has established six major sales companies in Japan and overseas which implement sound sales
strategies adapted to the individual characteristics of markets around the world.
North America is the world’s largest market and our most important geographical area, where ourPhilips, Magnavox, and Emerson brands enjoy high name recognition. We have established close business relationships with leading mass merchandisers and have captured large market share for our products, especially LCD TVs.
In Mexico, we offer the Philips brand, where we captured a 15% share of LCD TV shipments in 2013.
In 2014, we will move ahead with sales expansion in Central and South America by means such as
opening a sales branch in Colombia.
We have also begun sales under the FUNAI brand in Thailand and India. While continuing to emphasize North America, currently our main market, we will expand sales in emerging markets that continue
to show rapid growth, particularly Central and South America.
In addition, we plan to leverage the inkjet-related assets acquired from Lexmark in April 2013 to not
only sell printers developed in-house, but also to produce and supply commercial and industrial Ink cartridges and peripheral equipment to printer manufacturers.

JapanSocial Contribution Activities

Red Sox Foundation
The Red Sox Foundation is a charitable organization operated by the Boston Red Sox Major League
Baseball club that was founded in 2002. The primary focus of the foundation is in serving the health,education, recreation, and social service needs of children and families in the New England region.

15

Corporate
Data

Since 2002, the Funai Group has supported theMake-A-Wish Foundation, which is sponsored bya leading mass merchandiser in the United States.
Since 1980, the Make-A-Wish Foundation
has enriched the lives of children with lifethreatening medical conditions through its
wish-granting work. The Foundation’s mission
reflects the life-changing impact that a MakeA-Wish experience has on children, families,

Financial
SectionSupport for the Make-A-Wish Foundation(Sponsored by a Leading U.S. Mass Merchandiser)

Management Discussion
and Analysis

Funai helps the unfortunate victims of natural
disasters around the world in various ways.
To assist the victims of Hurricane Katrina,
which struck the Gulf Coast of the United Statesin the summer of 2005, a Funai subsidiary in the
U.S. donated 5,000 TV/VCR combination units.
Funai donated 2 million (approximately ¥5million) in relief fund for victims of the Chao
Phraya River flood in Thailand in 2011 for use in
Assistance for victims of Typhoon Haiyan, a major
typhoon that struck the central Philippines
providing assistance to evacuees.
Most recently, in response to a proposal froma local employee, Funai decided to donate to assist victims of Typhoon Haiyan, a major
typhoon that struck the central Philippines in November 2013. Together with our local plant,
we donated a total of ¥3.9 million through a charity organization in the Philippines.
We provide assistance to disaster victims in Japan as well. In July 2007, we donated
LCD TVs to victims of the Niigata Chuetsu Earthquake. We also donated approximately
100 LCD TVs to victims of the Great East Japan Earthquake of March 2011 and simultaneously solicited donations from Funai employees, which through the Japanese Red Cross
Society, contributed to support for victims.

Corporate
Governance

Assistance for Victims of Natural Disasters

SocialActivities /TopicsFunai supports the US-Japan Youth Baseball
Exchange, a program organized by the Red Sox
Foundation, the official team charity of the
Boston Red Sox. The program enables children
from Japan and the United States to explore thecustoms and culture of each others’ country
through their shared love of baseball. In a recent
exchange, from July 28 to August 7, 2012,
twelve youths and two coaches selected from
US-Japan Youth Baseball Exchange
youth baseball teams in Kyoto and Chiba visited
Boston to engage in an international cultural exchange. The youths received baseballinstruction from coaches from the Red Sox and local universities and played friendly
games with several local youth baseball teams. In addition, a commemorative event washeld at Fenway Park, the home field of the Boston Red Sox, in the park’s centennial year.
The next youth baseball team from Japan will be welcomed in a ceremony at Fenway
Park in August 2014.

BusinessStrengthreferral sources, donors, sponsors and entire communities.
In 2013, we hosted the Make-A-Wish hospitality events at two NASCAR races at
Richmond International Raceway, the Toyota Care 250 and the Virginia 529 College
Savings 250. Each event hosted 50 excited Make-A-Wish children, parents and guests at
a pre-race hospitality area complete with food, games and fun.
This is not only a great way for other “Wish Kids” to interact with each other, but agreat way for them to fulfill their wishes to attend a NASCAR race and meet theirfavorite drivers!
We also support social contribution activities of major national and local retail chainsand engage in sponsorship activities in New York and Los Angeles, where Funai Groupsales subsidiaries are located.

Message fromManagement

US-Japan Youth Baseball Exchange

Topics

Financial
SectionIn February 2014, Funai signed a partnershipagreement with the Boston Red Sox, a U.S. Major
League Baseball team. Under the terms of thepartnership agreement, the Funai logo was displayed on the signboard at the spring training
camp, the background board that is used forinterviews with the media and the bottom signboard of the back-net at Fenway Park. Funai also
advertise in the Boston Red Sox magazine.

Management Discussion
and Analysis

Signing of a Partnership Agreement with the Red Sox

Corporate
GovernanceFunai has been developing the electric walking
assistance cart since 2012. In recognition of theinnovation and technological capabilities the
cart incorporates, it has been selected for the
Ministry of Economy, Trade and Industry’s(METI) Project to Promote the Development andIntroduction of Robotic Devices for Nursing
Care in fiscal 2013. The cart was also displayed
at the METI booth at International Robot
Exhibition 2013, held at Tokyo Big Sight in
The robotics-based electric walking assistance cart
November 2013, where the reaction and inquiries from visitors greatly exceeded expectations.
Reflecting societal changes such as population aging in developed countries and theglobal spread of smart electronic devices, the cart incorporates functions superior to thoseof currently available products. By applying our reliable development capabilities and technical strengths in the healthcare field to solve an important societal problem, we aim to
make people’s lives more pleasant and rewarding.
The electric walking assistance cart has once again been selected for the Project toPromote the Development and Introduction of Robotic Devices for Nursing Care in fiscal 2014.
To facilitate early commercialization, this business was spun out in July 2014.

SocialActivities /TopicsThe Red Sox World Championship Party, hosted
by Ambassador Caroline Kennedy, was held inJanuary 2014 at the Ambassador’s Residence
in the U.S. Embassy in Tokyo. Funai President
and CEO Yoshikazu Uemura and Vice Chairman
Tomonori Hayashi received invitations to theparty through the Red Sox. The company has
had a cooperative relationship with the Red Sox
since 2007 through the US-Japan YouthBaseball Exchange and has recently signed a
Red Sox World Champion Party at the U.S. Embassy
partnership agreement with the club.
The 2013 World Series trophy won by the Red Sox was displayed at the party. The
trophy was brought to Japan on January 20th along with Red Sox team mascot Wally theGreen Monster. The party marked the third time for the trophy to come to Japan. In addition to pitchers Koji Uehara and Junichi Tazawa, who made important contributions to the
Red Sox’s championship, former New York Yankees and Saint Louis Cardinals players Mr.
Hideki Matsui and Mr. So Taguchi and Maestro Mr. Seiji Ozawa, a friend of Ambassador
Caroline Kennedy, were invited to the party.

BusinessStrength

Selection of the Electric Walking Assistance Cart for the Projectto Promote the Development and Introduction of Robotic Devices
for Nursing Care

Message fromManagement

U.S. Ambassador Caroline Kennedy attends the Red Sox WorldChampionship Party held by the U.S. Embassy in Japan.

Corporate
Data

Press interview board

16

Corporate Governance
Message fromManagement

1) Basic Philosophy on Corporate GovernanceCorporate Governance Organization
Ordinary General Meeting of Shareholders
Nominate/Dismiss

Nominate/Dismiss
Agree to nominate/
re-nominate

Nominate/Dismiss

Decision on appropriateness ofaccounting audits

Account Auditor

Audit Committee
Coordination

Accounting audit
reporting

Deliberations/
ReportReportReportCompensation Committee
Internal Investment and
Loan Committee

President and Representative Director
Director Responsible for Business/Executive Director

ReportAudit Office

ReportInternal audit

Commands/Orders

Respective business divisions/subsidiaries

Coordination

a. Board of Directors
The Funai Electric Group Board of Directors consists of seven directors, ofwhom two are outside directors. The Group strives for prompt decisionmaking by inside directors knowledgeable about the Group’s businessmatters, and participation in Board of Directors decision-making by outside
directors with no special interest in the Company ensures managementsoundness and transparency.
In addition, Board of Directors meetings are held, in principle, at least
once every three months and extraordinary meetings are held as necessary.
Furthermore, the term of office of directors is one year, which makes it

Financial
Section

The Group has adopted a board of corporate auditors governance structure
and introduced an executive officer system to establish a system for prompt
business execution. We have also ensured objectivity and transparency inimportant decision-making processes by establishing the Nomination
Committee, Compensation Committee, and Internal Investment and Loan
Committee as advisory bodies.

Management Discussion
and Analysis2) Description of the Management Organization in the
Fiscal Year under Review

Nominate/
Dismiss/Direction

Nomination Committee

Corporate
Governance

Board of Directors

Account audit

SocialActivities /TopicsAudit
Coordination

BusinessStrength

The Funai Electric Group’s basic philosophy on corporate governance is tocontinuously increase corporate value by increasing the transparency ofmanagement to shareholders, consumers, vendors, local communities,
employees, and other internal and external stakeholders and by responding
to changes in the business environment by ensuring management soundness
and efficiency and striving for prompt decision-making.
On the basis of this philosophy, the Group has introduced an executive
officer system to ensure expeditious decision-making and establish asystem for prompt business execution. The Group is also strengthening
CSR activities. We have formulated the Funai Group Code of Conduct,
which regulates the conduct of all members of the Funai Group, and theFunai Group Procurement Policy, which is based upon the Code of Conduct,and established the CSR Committee as an organization to promote corporatesocial responsibility.

possible to clearly define the responsibilities of directors and develop a flexible
management organization.

17

Corporate
Data

Advisory Bodies• Nomination Committee
The Nomination Committee consists of directors appointed by the Board of
Directors. As an advisory body to the Board of Directors, it ensures thetransparency and objectiveness of the candidate selection process byrecommending candidates for director to the Board of Directors.

Corporate Governance3) Status of Implementation of an Internal Control Systema. The Funai Group Code of Conduct and Executive Compliance Regulations,systems for ensuring that the execution of duties of directors complies withlaws and regulations and the Articles of Incorporation, clearly define proper
conduct for directors and ensure that the execution of duties of directors
18

Corporate
Data

The Board of Directors has resolved the following with respect to an internal
control system for the Funai Electric Group as a “System for ensuring theappropriateness of operations” and has implemented the system as follows.

Financial
Sectionc. Independent Auditors
The Company has appointed Deloitte Touche Tohmatsu LLC as independent
auditors. The status of accounting audits is recorded in “4) Status of Statutory
Audits, Internal Audits, and Accounting Audits e. Status of Accounting Audits.”

Management Discussion
and Analysis

b. Board of Corporate Auditors
The Board of Corporate Auditors consists of three corporate auditors, ofwhom two are outside auditors. No special interest exists between theseoutside auditors and the Funai Electric Group. Full-time Corporate Auditor
Hiromu Ishizaki is a tax accountant with knowledge of finance and accounting.
In principle, the Board of Corporate Auditors meets once a month.

Corporate
Governance• Internal Investment and Loan Committee
The Internal Investment and Loan Committee consists of directors appointed
by the president. It ensures the transparency and objectiveness of thedecision-making process regarding major investment and loan projects bydiscussing the details of individual projects from a group-wide perspective.

SocialActivities /TopicsAs a company that does business globally, Funai Electric must fulfill its responsibility to the global environment and to society as a good corporate citizen.
We established the CSR Committee as a companywide organization
under the direct control of the president to promote corporate social responsibility (CSR) and companywide CSR activities. Our Environmental andOccupational Health and Safety Charter is a public declaration of our basic
philosophy and guidelines for environmental preservation and occupational
health and safety activities. The basic principles of the charter clearly express
our commitment to environmental consideration in our business activities.
We formulated the Environmental Policies and Occupational Health and
Safety Policies as specific guidelines for activities conducted on a daily basis.
In this way, we strive to meet the expectations of all our stakeholders, including customers, business partners, shareholders and investors, employees
and the residents of host communities.
We engage in Green Procurement to purchase and use environmentfriendly parts and materials. We have made greenhouse gas (CO2) emissions
reduction an indicator of eco-friendly products and continuously strive todevelop products that help combat global warming. In the coming years, wewill continue environmental preservation activities that conserve energy andresources and curb CO2 emissions control at our business sites and lower
environmental impact over the entire product lifecycle.
In addition, as part of our social contribution activities, we participate incommunity beautification and cleanup activities sponsored by Daito City andthe activities of an organization thatengages in the preservation andregeneration of a community forest
near the head office. We also participate in an NPO-sponsored activity to
pay the cost of vaccines for children
in developing companies by separating, collecting, and recycling PET
Participating in a community cleanup activity
bottle caps.

BusinessStrength

CSR Activities

Message fromManagement

complies with laws and regulations and the Articles of Incorporation.

• Compensation Committee
The Compensation Committee consists of directors appointed by the Boardof Directors. It ensures the transparency and objectiveness of the compensation decision process by deciding compensation and other payments for
directors and executive officers under authority delegated by the Board of
Directors. Compensation and other payments for corporate auditors isdetermined by consultation among the corporate auditors.

Management Discussion and Analysis

Net Sales
Net sales increased by 21.9% to ¥234,043 million as a result of factors
including sales growth in the United States, the Group’s principal market,
and Mexico.

Net Loss
An extraordinary loss of ¥3,397 million due to factors including the recording ofbusiness structure improvement expenses resulted in net loss of ¥6,745 million.

North America
Sales rose sharply due to strong sales of large LCD TVs to a major massmerchandiser and favorable sales leading up to the peak year-end sales
Net Sales

Operating Income (Loss)

Net Loss(¥ billion)(¥ million)(¥ million)

246.1

234.0

Sales Composition
by Geographical Area

462

(Year ended March 31, 2014)

192.0

3% 12%

16%69%(6,745)(5,273)
2012

2013

2014

2012

2013

(5,466)
2014

2012
19

(8,543)
2013

2014

Japan
EuropeNorth America
Asia and others**Including sales of Central and South America

Corporate
Data(4,629)Management Discussion Financial
Sectionand Analysis

Asia and Others
Sales in Asia were ¥2,635 million, down 25.6% year on year. Sales in otherregions increased 85.8% to ¥24,320 million on higher sales of LCD TVs in
Mexico, among other factors.

Performance by Geographical Area

Corporate
GovernanceEuropeAlthough sales of printers and ink cartridges increased, sales of LCD TVs
and DVD-related products declined in a market that remains sluggish. As aresult, sales increased by 24.8% year on year to ¥7,736 million.

SocialActivities /TopicsJapan
Higher sales of LCD TVs and BD-related products contributed to a 6.3%
increase in sales from the previous fiscal year to ¥38,109 million.

Operating Loss
The Company posted an operating loss of ¥5,466 million attributable mainly
to deterioration in the profitability of Philips-brand LCD TVs and audio accessory
products in the United States and Mexico.

BusinessStrengthperiod. The full-year contribution from Philips-brand audio accessories,
which began shipping in September 2012, also boosted sales. In the resultsfor DVD-related products, BD players sold well. These developments, coupledwith the recording of ink cartridge sales, resulted in sales of ¥161,242 million, up 21.0% year on year.

Message fromManagement

Business Performancein the Fiscal Year ended March 31, 2014

Management Discussion and Analysis

Audiovisual Equipment
Sales rose sharply in North America on strong sales of LCD TVs leading up
to the peak year-end sales period, and sales of BD-related products
increased year on year as well. As a result, net sales were ¥183,108 million,
an increase of 17.6% year on year.

Current Liabilities
Current liabilities as of March 31, 2014 were ¥53,692 million, down ¥15,761
million from ¥69,453 million a year earlier.
The change is mainly attributable to decreases of ¥6,237 million in trade

Current Assets
Current assets as of March 31, 2014 were ¥144,041 million, down ¥20,302
million from ¥164,343 million a year earlier.
Sales by Geographical Area

Sales Composition by Products

Sales by Products(¥ billion)(Year ended March 31, 2014)(¥ billion)

12.6 8.9
2012

134.1

30.0
81.3

246.1

9.3
6.2 13.1
133.3

8%35.9 192.0

161.2

78%

Europe2014

38.1 234.0

Asia

Others

2013

155.7

192.0
18.9

2.6
North America

32.6 246.1
12.0 24.4

3.5
7.7 24.3
2014

183.5

Corporate
Data

2013

2012

14%

Japan

Management Discussion Financial
Sectionand Analysis

Financial Position

Corporate
Governance

Others
Net sales were ¥32,058 million, up 31.6% year on year, mainly as a result of
the contribution from sales of audio accessory products in North America.

SocialActivities /TopicsFixed Assets
Fixed assets as of March 31, 2014 were ¥37,300 million, up ¥7,119 million
from ¥30,181 million a year earlier.
The change is mainly attributable to increases of ¥5,229 million in property,
plant and equipment (from ¥16,676 million to ¥21,905 million) and ¥2,575
million in patents (from ¥2,079 million to ¥4,654 million). The main reason for
the increases in property, plant and equipment and patents was the acquisitionof inkjet-related patent rights and development facilities from Lexmark
International, Inc.

Information Equipment
In the information equipment sector, an increase in printer orders and therecording of ink cartridge sales resulted in net sales of ¥18,876 million, up
57.8% year on year.

BusinessStrength

The change is mainly attributable to a decrease of ¥18,645 in cash anddeposits (from ¥67,813 million to ¥49,168 million) resulting from the acquisitionof inkjet-related patent rights and development facilities from Lexmark
International, Inc. and the acquisition of shares of a manufacturing subsidiary, among other factors.

Message fromManagement

Sales by Product Category

Audiovisual equipment
Information equipment
others20

183.1

Audiovisual equipment

32.1 234.0

Information equipment

othersManagement Discussion and Analysis

Total Liabilities

Total Equity(¥ billion)(¥ billion)(¥ billion)

176.6

194.5

181.3

123.8

73.1

Shareholders’ Equity Ratio
(%)

121.4

63.7

117.7

69.5

52.8

64.2

Management Discussion Financial
Sectionand Analysis

Total Assets

Corporate
GovernanceCash Flows from Operating Activities
Net cash used in operating activities was ¥1,251 million, compared with
¥8,023 million in net cash used in the previous fiscal year. The change ismainly attributable to an increase in net loss before income taxes and minority
interests and decreases in inventories and trade payables.

Total Equity
Total equity as of March 31, 2014 were ¥117,684 million, down ¥3,714 million
from ¥121,398 million a year earlier.
The change is mainly attributable to a decrease of ¥7,939 million inretained earnings (from ¥101,136 million to ¥93,197 million) and an increase

SocialActivities /TopicsLong-Term Liabilities
Long-term liabilities as of March 31, 2014 were ¥9,965 million, up ¥6,292
million from ¥3,673 million a year earlier.
The change is mainly attributable to an increase of ¥6,038 million in longterm debt (from ¥147 million to ¥6,185 million), mainly bank borrowings
employed as working capital.

BusinessStrength

Cash Flows
Cash and cash equivalents (hereafter “cash”) on a consolidated basis as of March
31, 2014 were ¥43,613 million, down ¥6,625 million from a year earlier.
The change is mainly attributable to a decrease in trade payables, payments for the purchase of investments in subsidiaries resulting in change inthe scope of consolidation, and a decrease in short-term bank borrowings,
which offset a decrease in inventories and proceeds from long-term debt.
Cash flows during the fiscal year under review and factors affecting cash
flows are as follows.

Message fromManagementof ¥4,227 million in foreign currency translation adjustments (from negative¥21,723 million to negative ¥17,496 million).

payables (from ¥39,179 million to ¥32,942 million) and ¥8,756 million in
short-term bank borrowings (from ¥12,982 million to ¥4,226 million). The
main reason for the decrease in trade notes and accounts payable was payment
for purchases of raw materials, and the main reason for the decrease in
short-term bank borrowings were repayment of bank borrowings employed
as working capital.

61.7
Corporate
Data

2012

2013

2014

2012

2013

2012

2014
21

2013

2014

2012

2013

2014

Management Discussion and Analysis(1) The Funai Group’s Management Policy
The Group manufactures and sells as our principal products audiovisualequipment, information equipment, and other equipment. Price competitionin these product areas is intense; product life cycles are short; and competition
to develop new technologies and functions is growing more severe.
Accordingly, these factors may affect the Group’s financial situation andoperating results.
1) Product cost and market prices
When the cost of parts and raw materials rises due to intense competition in
the home electronic appliance industry, even though we have implemented
various countermeasures, cost pressures may affect the Group’s financial
situation and operating results.

(2) Impact of Overseas Market Trends
1) Dependence on the North American market
Since a large portion of the Group’s net sales originates in the North American
market, should the North American economy rapidly go into recession, thismay affect the Group’s financial situation and operating results.

2) Response to new technologies
To respond to various issues, the Group improves its technological capabilities,
focusing mainly on new business sectors, by means such as business allianceswith other companies, collaboration with academia, and personnel
22

Corporate
Data5) Corporate acquisitions and business alliances
At times the Group engages in corporate acquisitions and business alliances
to more efficiently increase sales and profits. However, if for various reasonsagreement is not reached on a corporate acquisition, initially expected acquisition synergies do not materialize, or an alliance partnership cannot be continued, this may affect the Group’s financial situation, operating results, andgrowth prospects.

Management Discussion Financial
Sectionand Analysis

4) Intellectual property rights
Recent years have seen an increase in activity by “patent trolls,” entities thatsell no products of their own, but rather attempt to generate income frompatent royalties by filing lawsuits using intellectual property rights acquired
from third parties. This is a worrisome trend for the manufacturing and sales
industry as a whole. Should the Group be compelled to make large compensation payments as a result of the activities of patent trolls, this may affect
the Group’s financial situation and operating results.

Risks that may have a significant impact on the Group’s financial situationand operating results are outlined below.

Corporate
GovernanceBusiness and Other Risks

SocialActivities /TopicsCash Flows from Financing Activities
Net cash used in financing activities was ¥4,677 million, compared with
¥5,129 million in net cash provided in the previous fiscal year. The change ismainly attributable to a decrease in net short-term bank loans, which offset
proceeds from long-term debt.

BusinessStrength3) Defects relating to products and services
The Group’s departments responsible for quality management and technologies play a central role in an effort to maintain and improve quality. In addition, the Group have established service companies and put in place aservice system in Japan and overseas. However, if a product defect occursthat requires repair or replacement of products, the impact of warranties,
damage to the Group’s reputation, and other resulting factors may affect theGroup’s financial situation and operating results.

Message fromManagement

development, and also considers mergers and acquisitions as an option.
However, greater than expected diversification of market needs or technologicalinnovation may affect the Group’s financial situation and operating results.

Cash Flows from Investing Activities
Net cash used in investing activities was ¥2,730 million, compared with
¥12,864 in net cash provided in the previous fiscal year. The change is mainly
attributable to purchases of property, plant and equipment and intangible
assets and the purchase of investments in subsidiaries resulting in change inthe scope of consolidation.

Management Discussion and Analysis

5) Deferred tax assets
The Group bases its decisions on the recoverability of deferred tax assets on
various forecasts and assumptions about future taxable earnings. Should theforecasts and assumptions about future taxable earnings change or should
the Group determine that part or all of its deferred tax assets cannot berecovered, deferred tax assets will decrease, and this may affect the Group’s
financial situation and operating results.
6) Financing
The Group may be subject to restrictions on financing resulting in an increasein financing costs due to deterioration in business performance, and this may
affect the Group’s financial situation and operating results.
In addition, a portion of the Group’s borrowings are subject to financial
covenants. Any infringement of the covenants may result in interest rateincreases or forfeiture of benefit of time and affect the Group’s financial situationand operating results.

23

Corporate
Data2) Litigation
Various litigation risks pertaining to the operation of the Group’s businesses
in Japan and overseas continuously exist. The filing of a major lawsuit may
affect the Group’s financial situation and operating results.

Management Discussion Financial
Sectionand Analysis(3) Other Risks
1) Statutory regulations
In the countries where it does business, the Group is subject to the applicationof various laws and regulations pertaining to areas such as commercial
transactions, import and export, antitrust, intellectual property rights, productliability, environmental protection, consumer protection, financial transactions, and taxation of business entities. Should these laws and regulations or
the interpretation of laws and regulations by the authorities become stricter,this may affect the Group’s financial situation and operating results.

Corporate
Governance4) Retirement benefit obligations
The Group and some Group companies have in place defined benefit corporate
pension systems, and retirement benefit obligations are calculated based on
actuarial assumptions such as long-term expected rates of return and discountrates on pension assets. However, should it become necessary to change
those assumptions, should pension assets decrease due to deterioration in
the investment environment or other factors, or should future retirement benefit
costs increase due to changes in the pension system, this may affect theGroup’s financial situation and operating results.

SocialActivities /Topics3) Foreign currency risk
The majority of the Group’s purchasing and sales transactions are conductedin U.S. dollars. We believe this reduces the risks that accompany currency
fluctuations. However, since it is impossible to completely eliminate foreign
currency risk, and foreign currency-denominated assets and liabilities aretranslated to yen at the exchange rates on the settlement date, large currency
fluctuations may affect the Group’s financial situation and operating results.

BusinessStrength3) Management of information
Although the Group has implemented measures to prevent information leaks
and virus protection systems on its internal information systems, it may not
be possible to completely prevent information leaks or system crashes
caused by human error or new virus strains. The occurrence of such an
event may affect the Group’s financial situation and operating results.

Message fromManagement

2) Dependence on production in China
Since the Group has a high rate of production (consignment fabrication andown production) in China to take advantage of cost benefits, changes in thepolitical system in China, the occurrence of conflict or natural disaster, orother unforeseen circumstances may affect the Group’s financial situationand operating results.

Five-Year Summary

2014

Net Sales

314,912295,924

246,148

192,008

234,043

2,272,262

Operating Income (Loss)

11,148772

462(5,273)(5,466)(53,068)

Net Income (Loss)

10,329(1,170)(4,629)(8,543)(6,745)(65,485)

Total Equity

142,780

131,229

123,844

121,398

117,684

1,142,563

Total Assets

204,058

193,910

176,607

194,524

181,341

1,760,592

Shareholders’ Equity

141,992

130,088

122,762

120,103

116,509

1,131,155

Net Cash (Used in) Provided by Operating Activities

3,640(5,166)

16,416(8,023)(1,251)(12,145)

Net Cash (Used in) Provided by Investing Activities(2,714)

4,071(6,435)

12,864(2,730)(26,505)926(1,095)

9,981

4,841

(3,981)(38,650)

Capital Investment

4,310

6,062

3,932

5,346

10,926

106,078

Depreciation Expense

4,300

4,867

4,971

4,057

5,240

50,874Return on Assets (%)

5.11(0.59)(2.50)(4.60)(3.59)

Return on Equity (%)

7.45(0.86)(3.66)(7.03)(5.70)

Debt/Equity Ratio (%)

4.86

7.79

3.73

10.81

9.14

Free Cash Flow

Financial
Section

2014

2011

Yen
2012

2013

2014

Shareholders’ Equity per Share

4,164.86

3,813.57

3,598.03

3,520.11

3,414.77

33.15

Net Income (Loss) per Share

302.97(34.31)(135.69)(250.38)(197.70)(1.92)

40

40

50

35

35

0.34

Note: The exchange rate of ¥103.00=U.S.$1.00 (the approximate rate of exchange at March 31, 2014) is used for the above calculations.

24

U.S. dollars
2014

Corporate
Data

2010

Cash Dividends per ShareManagement Discussion
and Analysis

2013

Corporate
Governance2012

SocialActivities /Topics2011

BusinessStrength

2010

Years ended March 31

Message fromManagement

Thousands of U.S.
dollars (Note)

Millions of yen

Consolidated Balance Sheet

March 31,

¥ 50,238
17,575$ 423,427
53,932

37,6822,567(211)
49,2762,504
3,055
144,041

33,194
2,025(178)
55,641
2,887
2,961
164,343

365,845
24,922(2,049)478,408
24,311
29,6601,398,456

6,179
18,27836,126491
826
61,900(39,995)
21,905

6,170
12,332
30,778698
1,099
51,077(34,401)
16,67659,990177,456
350,7384,767
8,020
600,971(388,301)
212,670

2,448

2,900

23,767

3,151

3,270

30,592

4,654
185
1,976
1
336
401
2,540
(297)
15,395¥181,341

2,079
169
1,474
4
879
437
2,486
(193)
13,505¥194,524

45,185
1,796
19,184
10
3,262
3,893
24,660(2,883)
149,466$1,760,592

March 31,

March 31,

2014
¥

2014

2013

4,226
388

¥ 12,982
163$

41,0293,767

32,942
11,572414
4,150
53,692

39,17911,1241,691
4,314
69,453319,825
112,350
4,019
40,291
521,281

6,185
1,864
470
1,154
292
9,965

147
2,009
4
1,169
344
3,673

60,04918,097
4,563
11,204
2,835
96,74831,30831,308303,961

Capital surplus
Stock acquisition rights
Retained earnings

33,272
131
93,19733,272
122
101,136

323,029
1,272
904,825

Treasury stock – at cost
2,011,615 shares in 2014 and 2013(24,341)(24,341)(236,320)

673(17,496)(103)
116,641
1,043
117,684¥181,341

451(21,723)

6,534(169,864)(1,000)1,132,437
10,126
1,142,563$1,760,592

COMMITMENTS AND
CONTINGENT LIABILITIES (Notes 15 and 22)
EQUITY (Notes 11, 12, and 20):Common stock:
Authorized, 80,000,000 shares; issued,
36,130,796 shares in 2014 and 2013

Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Defined retirement benefit plans
Total
Minority interests
Total equity
TOTAL

See notes to consolidated financial statements.

25

120,225
1,173
121,398¥194,524

Corporate
Data¥ 43,613
5,555

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank borrowings (Notes 9 and 17)
Current portion of long-term debt (Notes 9, 15, and 17)
Payables:Trade (Note 17)
Other (Note 17)
Income taxes payable (Note 16)
Other current liabilities (Note 16)
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 9, 15, and 17)
Liability for retirement benefits (Note 10)Long-term payables – other
Deferred tax liabilities (Note 16)
Other
Total long-term liabilities

Financial
Section2014

Management Discussion
and Analysis

2013(Thousands of
U.S. dollars) (Note 1)

Corporate
Governance

Patents
Long-term loans
Long-term prepaid expenses
Goodwill
Assets for retirement benefits (Note 10)
Deferred tax assets (Note 16)
Other assets
Allowance for doubtful accounts
Total investments and other assets
TOTAL

March 31,

2014

(Millions of yen)SocialActivities /TopicsInvestments in and advances to unconsolidated
subsidiaries and associated companies(Thousands of
U.S. dollars) (Note 1)

BusinessStrength

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 17)
Time deposits (Note 17)
Receivables:
Trade (Note 17)
Other
Allowance for doubtful accounts
Inventories (Note 4)
Deferred tax assets (Note 16)
Prepaid expenses and other current assets
Total current assets
PROPERTY, PLANT AND EQUIPMENT:Land
Buildings and structures
Machinery, equipment and other
Lease assets (Note 15)
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 8 and 17)(Millions of yen)

Message fromManagement

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
March 31, 2014

Consolidated Statement of Comprehensive Loss

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2014

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2014
(Millions of yen)(Thousands of
U.S. dollars) (Note 1)

Years ended March 31,

Year ended
March 31,

Years ended March 31,

Year ended
March 31,

38,05333,940369,447(5,466)(5,273)(53,068)

269
(193)
3,477

321
(112)
4,691

2,612
(1,874)33,757(Loss) gain on sale or disposal of property, plantand equipment

(45)

421

(437)

Equity in losses of associates
Loss on impairment of investment securities
Loss on impairment of long-lived assets (Note 5)Compensation expenses
Advisory fees (Note 7)
Business structure improvement expenses (Note 6)
Other – net
Other (expenses) income – net

(125)
(513)
(267)
(529)
(1,166)(1,281)
199
(174)

(70)
(413)
(1,614)

(462)
2,762

(1,213)(4,981)(2,592)(5,136)(11,320)(12,437)
1,932(1,689)(5,640)(2,511)(54,757)

519

725
967
4,326
6,018
(8,529)(14)¥ (8,543)

5,039

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Notes 13 and 14)
Operating loss
OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Foreign exchange gain – net

NET LOSS BEFORE INCOME TAXES AND
MINORITY INTERESTS

549
1,068
(6,708)(37)¥ (6,745)$(Japanese yen)

PER SHARE OF COMMON STOCK (Notes 2.v and 19):Basic net loss
Cash dividends applicable to the year

¥ (197.70)
35.00¥ (250.38)
35.00

Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive income in associates
Total other comprehensive income
COMPREHENSIVE LOSS (Note 18)

2013

2014

¥(6,708)¥(8,529)$(65,126)

224
4,169
135
58
4,586

396
7,190
33
7,619

2,175
40,4761,310
563
44,524¥(2,122)¥ (910)$(20,602)¥(2,161)39¥ (953)43$(20,981)
379

TOTAL COMPREHENSIVE (LOSS) INCOME
ATTRIBUTABLE TO (Note 18):Owners of the parent
Minority interests
See notes to consolidated financial statements.

5,330
10,369(65,126)(359)(65,485)(U.S. dollars)

$

2014

Corporate
Data

INCOME TAXES (Note 16):Current
Prior years
Deferred
Total income taxes
NET LOSS BEFORE MINORITY INTERESTSMINORITY INTERESTS
NET LOSS

NET LOSS BEFORE MINORITY INTERESTSOTHER COMPREHENSIVE INCOME (Note 18):Financial
Section2014$2,272,262
1,955,883
316,379

Management Discussion
and Analysis

2013¥192,008
163,341
28,667

Corporate
Governance2014¥234,043
201,456
32,587

NET SALESCOST OF SALES (Note 14)
Gross profit

SocialActivities /Topics(Thousands of
U.S. dollars) (Note 1)

BusinessStrength(Millions of yen)

Message fromManagement

Consolidated Statement of Operations(1.92)
0.34

See notes to consolidated financial statements.

26

Consolidated Statement of Changes in Equity
Message fromManagement

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2014
(Thousands)(Millions of Japanese yen)
Accumulated
other comprehensive (loss) income
Commonstock

CapitalsurplusStockacquisitionrights34,119¥31,308¥33,272¥107

Retainedearnings

Treasurystock

Unrealized
gain onavailable-for-salesecurities

Foreigncurrencytranslation
adjustments¥111,385(8,543)(1,706)¥(24,341)¥ 56¥(28,918)

Definedretirement
benefit plans

31,30833,272

34,119¥31,308¥33,2729¥131

101,136(6,745)(1,194)(24,341)

395
451

7,195
(21,723)¥ 93,197¥(24,341)

222
¥673

4,227
¥(17,496)(103)¥(103)

Total
equity

¥ 975

(130)
¥1,043¥123,844(8,543)(1,706)(0)
7,803
121,398(6,745)(1,194)4,225¥117,684

Minority
interests

Total
equity198
1,173(Thousands of U.S. dollars) (Note 1)

Corporate
Governance

34,119¥122,869(8,543)(1,706)(0)
7,605
120,225(6,745)(1,194)
4,355¥116,641

Minority
interests

SocialActivities /Topics

(0)
15
122

Total

BusinessStrength

BALANCE, APRIL 1, 2012
Net loss
Cash dividends, ¥50.00 per share
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2013
Net loss
Cash dividends, ¥35.00 per share
Net change in the year
BALANCE, MARCH 31, 2014

Number ofshares ofcommon stock
outstanding

Accumulated
other comprehensive (loss) income
CapitalsurplusStockacquisitionrights$303,961$323,029$1,184$303,961$323,02988$1,272

Treasurystock$981,903 $(236,320)(65,485)(11,593)$904,825$(236,320)

Unrealized
gain onavailable-for-salesecurities

Foreigncurrencytranslation
adjustments$4,379$(210,903)

2,155$6,534

41,039$(169,864)

Definedretirement
benefit plans

Total$1,167,233(65,485)(11,593)(1,000)42,282$(1,000) $1,132,437$11,388$1,178,621(65,485)(11,593)(1,262)
41,020$10,126 $1,142,563

Financial
SectionSee notes to consolidated financial statements.

Retainedearnings

Management Discussion
and Analysis

BALANCE, MARCH 31, 2013
Net loss
Cash dividends,$0.34 per share
Net change in the year
BALANCE, MARCH 31, 2014

Commonstock

Corporate
Data

27

Consolidated Statement of Cash Flows(Thousands of
U.S. dollars) (Note 1)(Millions of yen)(Thousands of
U.S. dollars) (Note 1)

Years ended March 31,

Year ended
March 31,

Years ended March 31,

Year ended
March 31,$ (54,757)(2,422)747
6,480(1,010)684
5,265(23,514)
7,252
62,913

45

(421)

437

267
125
0
1,045

1,614
70
92

2,592
1,213
0
10,146(261)
11,037(12,057)

4,389(15,194)
1,328(2,534)
107,155(117,058)

(16)

(112)

(155)

(601)
4,389
(1,251)(2,217)(5,512)(8,023)(5,835)42,612(12,145)(5,500)18,37768(5,175)(4,321)
221(362)(59,777)
80,150497(5,384)
(415)
357
(702)

(53,398)
178,417660(50,243)(41,951)
2,146(3,515)(5,832)
(56)
7
(157)
¥ (2,730)

NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS

2014¥ (9,391)(525)(1,194)
6,433(4,677)¥ 6,900(1,706)(65)
5,129$ (91,175)(5,097)(11,593)62,457(45,408)

2,033

3,667

19,738(6,625)

13,637(64,320)

INCREASE IN CASH AND CASH EQUIVALENTS
FROM NEWLY CONSOLIDATED SUBSIDIARIES,BEGINNING OF YEAR34

CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR

50,23836,567487,747

CASH AND CASH EQUIVALENTS, END OF YEAR

¥43,613¥50,238$423,427

See notes to consolidated financial statements.

(56,621)(1,074)85(873)¥12,8642013

CorporateData¥ (2,511)

2014

Financial
SectionDecrease in liability
for employees’ retirement benefits
Other – net
Total adjustments
Net cash used in operating activities
INVESTING ACTIVITIES:Payments for time deposits
Proceeds from time deposits
Proceeds from sale of property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds from sales of investment securities
Purchases of investment securities
Payments for purchase ofinvestments in subsidiaries resulting in change
in scope of consolidation
Payments for loans receivable
Proceeds from collection of loans receivable
Other – net
Net cash (used in) provided by investing activities¥ (5,640)

FINANCING ACTIVITIES:(Decrease) increase in short-term bank loans – net
Repayments of long-term debt
Dividends paid
Other – net
Net cash (used in) provided by financing activities
FOREIGN CURRENCY TRANSLATIONADJUSTMENTS ON CASH AND
CASH EQUIVALENTSManagement Discussion
and Analysis

Loss on impairment of long-lived assets
Equity in losses of associates
Loss on sales of investment securities - net
Business structure improvement expenses
Changes in assets and liabilities(Increase) decrease in trade receivables
Decrease (increase) in inventories(Decrease) increase in trade payables

2014

SocialActivities /TopicsLoss (gain) on sale or disposal ofproperty, plant and equipment

2013

Corporate
Governance

2014
OPERATING ACTIVITIES:Net loss before income taxes and minority interests
Adjustments for:
Income taxes – paid
Income taxes – refund
Depreciation and amortization

BusinessStrength(Millions of yen)

Message fromManagement

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2014

(544)
68
(1,524)$ (26,505)
28

Notes to Consolidated Financial Statements

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

e.	Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the companies’ past credit loss experience and an evaluation ofpotential losses in the receivables outstanding.

29

Corporate
Datab.	Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated
Financial Statements—In May 2006, the Accounting Standards Board of Japan (“ASBJ”) issued
ASBJ Practical Issues Task Force (PITF) No. 18, “Practical Solution on Unification of Accounting
Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements.” PITF

Financial
Sectiond.	Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into
cash and exposed to insignificant risk of changes in value.
		 Cash equivalents include time deposits, certificates of deposit, commercial paper and bondfunds, all of which mature or become due within three months of the date of acquisition.

Management Discussion
and Analysisa.	Consolidation—The consolidated financial statements as of March 31, 2014, include the accountsof the Company and its 21 significant (18 in 2013) subsidiaries (together, the “Group”).
		 Under the control or influence concept, those companies over whose operations the Company,
directly or indirectly, is able to exercise control are fully consolidated and those companies over which
the Group has the ability to exercise significant influence are accounted for using the equity method.
		 In 2014, investments in one (one in 2013) unconsolidated subsidiary and one (one in 2013)
associated company are accounted for using the equity method. Investments in the remaining
unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of
accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.
		 All significant intercompany balances and transactions have been eliminated in consolidation.
All material unrealized profit included in assets resulting from transactions within the Group is also
eliminated.

Corporate
Governance

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESSocialActivities /Topicsc.	Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity
Method—In March 2008, the ASBJ issued ASBJ Statement No. 16, “Accounting Standard for
Equity Method of Accounting for Investments.” The new standard requires adjustments to be madeto conform the associate’s accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate’s financial statements are used inapplying the equity method, unless it is impracticable to determine such adjustments. In addition,
financial statements prepared by foreign associated companies in accordance with either
International Financial Reporting Standards or the generally accepted accounting principles in the
United States of America tentatively may be used in applying the equity method if the following items
are adjusted, so that net income is accounted for in accordance with Japanese GAAP, unless they
are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss ofpensions that has been directly recorded in the equity; (c) expensing capitalized development costsof R&D; (d) cancellation of the fair value model accounting for property, plant and equipment andinvestment properties and incorporation of the cost model accounting; and (e) exclusion of minority
interests from net income, if included in net income.

BusinessStrength

No. 18 prescribes that the accounting policies and procedures applied to a parent company and its
subsidiaries for similar transactions and events under similar circumstances should, in principle, be
unified for the preparation of the consolidated financial statements. However, financial statements
prepared by foreign subsidiaries in accordance with either International Financial ReportingStandards or the generally accepted accounting principles in the United States of America tentatively
may be used for the consolidation process, except for the following items that should be adjusted in
the consolidation process, so that net income is accounted for in accordance with Japanese GAAP,
unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gainor loss of pensions that has been directly recorded in the equity; (c) expensing capitalized development costs of research and development (R&D); (d) cancellation of the fair value model accounting
for property, plant and equipment and investment properties and incorporation of the cost modelaccounting; and (e) exclusion of minority interests from net income, if included in net income.

The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally accepted in Japan (“Japanese GAAP”),
which are different in certain respects as to the application and disclosure requirements of International
Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements
have been made to the consolidated financial statements issued domestically in order to present themin a form that is more familiar to readers outside Japan. In addition, certain reclassifications have been
made to the 2013 consolidated financial statements to conform to the classifications used in 2014.
The consolidated financial statements are stated in Japanese yen, the currency of the country inwhich Funai Electric Co., Ltd. (the “Company”), is incorporated and operates. The translations ofJapanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥103 to $1, the approximate rate of exchange at March
31, 2014. Such translations should not be construed as representations that the Japanese yen amounts
could be converted into U.S. dollars at that or any other rate.

Message fromManagement

FUNAI ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended March 31, 2014

Notes to Consolidated Financial Statementsj.	Goodwill—Cost in excess of the net assets of subsidiaries acquired is amortized on a straight-line
basis over five years.

l.	Long-Lived Assets—The Group reviews its long-lived assets for impairment whenever events orchanges in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or asset group exceeds
30

Corporate
Datak.	Intangible Assets—Intangible assets are stated at cost. Amortization of intangible assets of theCompany and its consolidated subsidiaries is computed using the straight-line method. Amortizationof software for internal use is computed using the straight-line method based over the estimateduseful life (five years).

Financial
Sectioni.	Patents—Patents are carried at cost, less accumulated amortization, which is computed using thestraight-line method over the estimated useful lives.

Management Discussion
and Analysish.	Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation ofproperty, plant and equipment of the Company and its consolidated domestic subsidiaries is computed substantially using the declining-balance method, while the straight-line method is applied tobuildings acquired after April 1, 1998, at rates based on the estimated useful lives of the assets.
Depreciation of property, plant and equipment of consolidated foreign subsidiaries is principally computed using the straight-line method at rates based on the estimated useful lives of the assets. The
range of useful lives is principally from three to 50 years for buildings and structures and from 1 to 20
years for machinery, equipment and other.
		 Lease assets are depreciated using the straight-line method over the respective lease periods.

Corporate
Governancem.	Retirement and Pension Plans—The Company and certain consolidated subsidiaries have noncontributory funded defined benefit pension plans and unfunded retirement benefit plans for employees. Certain consolidated foreign subsidiaries also have defined contributed pension plans.
		 Effective April 1, 2000, the Group adopted a new accounting standard for employees’ retirement
benefits and accounted for the liability for retirement benefits based on the projected benefit obligations and plan assets at the consolidated balance sheet date. The total transitional obligation determined as of April 1, 2000, was charged to income when adopted, except that of a certain domestic
subsidiary, which is being amortized over 15 years.
		 Actuarial gains or losses are amortized using the straight-line method over a period within the
average remaining years of service of the employees (10 years) starting from the following period.
Prior service cost is amortized using the straight-line method over a period within the averageremaining years of service of the employees (10 years).
		 Retirement allowances for directors, corporate auditors, and executive officers are recorded as aliability at the amount that would be required if all directors, corporate auditors, and executive officers
retired at each consolidated balance sheet date.
		 In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement
Benefits” and ASBJ Guidance No. 25, “Guidance on Accounting Standard for Retirement Benefits,”
which replaced the accounting standard for retirement benefits that had been issued by the BusinessAccounting Council in 1998 with an effective date of April 1, 2000, and the other related practicalguidance, and were followed by partial amendments from time to time through 2009.
		 (a)	Under the revised accounting standard, actuarial gains and losses and past service costs thatare yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus is recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).
		 (b)	The revised accounting standard does not change how to recognize actuarial gains andlosses and past service costs in profit or loss. Those amounts are recognized in profit or loss
over a certain period no longer than the expected average remaining service period of theemployees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss are included in other comprehensive income and actuarial gains and losses and past service costs that were recognized inother comprehensive income in prior periods and then recognized in profit or loss in the current period shall be treated as reclassification adjustments (see Note 2.x)

SocialActivities /Topicsg.	Investment Securities—Investment securities are classified and accounted for depending on management’s intent. All investment securities are classified as available-for-sale securities.
		 Marketable available-for-sale securities are reported at fair value, with unrealized gains andlosses, net of applicable taxes, reported as a separate component of equity.
		 Nonmarketable available-for-sale securities are stated at cost determined by the moving-averagemethod. For other-than-temporary declines in fair value, investment securities are reduced to net
realizable value by a charge to income.

BusinessStrength

the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amountby which the carrying amount of the asset exceeds its recoverable amount, which is the higher of thesum of the discounted cash flows from the continued use and eventual disposition of the asset, orthe net selling price at disposition.

Message fromManagementf.	Inventories—Inventories of the Company and its consolidated domestic subsidiaries are mainly
stated at the lower of cost, determined using the average method for finished products and work inprocess and using the first-in, first-out method for raw materials, or net selling value.
		 Inventories of the consolidated foreign subsidiaries are mainly stated at the lower of cost, determined using the first-in, first-out method, or net selling value.

Notes to Consolidated Financial Statements

31

Corporate
Datao.	Stock Options—In December 2005, the ASBJ issued ASBJ Statement No. 8, “Accounting Standard
for Stock Options” and related guidance. The new standard and guidance are applicable to stock
options newly granted on and after May 1, 2006.

Financial
Sectionr.	Construction Contracts—In December 2007, the ASBJ issued ASBJ Statement No. 15, “AccountingStandard for Construction Contracts,” and ASBJ Guidance No. 18, “Guidance on AccountingStandard for Construction Contracts.” Under this accounting standard, construction revenue andconstruction costs should be recognized using the percentage-of-completion method if the outcomeof a construction contract can be estimated reliably. When total construction revenue, total construction costs and the stage of completion of the contract at the consolidated balance sheet date are
deemed to be reliably measured, the outcome of a construction contract can be estimated reliably. If
the outcome of a construction contract cannot be reliably estimated, the completed-contract
method should be applied. When it is probable that the total construction costs will exceed total
construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on construction contracts.

Management Discussion
and Analysisn.	Asset Retirement Obligations—In March 2008, the ASBJ published ASBJ Statement No. 18,“Accounting Standard for Asset Retirement Obligations” and ASBJ Guidance No. 21, “Guidance on
Accounting Standard for Asset Retirement Obligations.” Under this accounting standard, an asset
retirement obligation is defined as a legal obligation imposed either by law or contract that resultsfrom the acquisition, construction, development and normal operation of a tangible fixed asset and isassociated with the retirement of such tangible fixed asset.
		 The asset retirement obligation is recognized as the sum of the discounted cash flows required forthe future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be madein the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement obligation can be made. Upon initial recognition of a liability for an
asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of
the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocatedto expense through depreciation over the remaining useful life of the asset. Over time, the liability is
accreted to its present value each period. Any subsequent revisions to the timing or the amount of theoriginal estimate of undiscounted cash flows are reflected as an adjustment to the carrying amount of
the liability and the capitalized amount of the related asset retirement cost.

Corporate
Governanceq.	Leases—In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard forLease Transactions,” which revised the previous accounting standard for lease transactions. The
revised accounting standard for lease transactions was effective for fiscal years beginning on orafter April 1, 2008.
		 Under the previous accounting standard, finance leases that were deemed to transfer ownershipof the leased property to the lessee were capitalized. However, other finance leases were permitted
to be accounted for as operating lease transactions if certain “as if capitalized” information was disclosed in a note to the lessee’s financial statements. The revised accounting standard requires that
all finance lease transactions be capitalized by recognizing lease assets and lease obligations in thebalance sheet. In addition, the revised accounting standard permits leases that existed at the transition date and do not transfer ownership of the leased property to the lessee to continue to beaccounted for as operating lease transactions.

SocialActivities /Topicsp. R&D Costs—R&D costs are charged to income as incurred.

BusinessStrength		 This standard requires companies to measure the cost of employee stock options based on thefair value at the date of grant and recognize compensation expense over the vesting period as consideration for receiving goods or services. The standard also requires companies to account for
stock options granted to nonemployees based on the fair value of either the stock option or the
goods or services received.
		 The Company recognizes compensation expense for stock options granted to directors, corporate auditors, executive officers and employees based on the fair value at the date of grant and overthe vesting period as consideration for receiving goods or services. A domestic subsidiary also measures options at their intrinsic value if it cannot reliably estimate the fair value. In the consolidated balance sheet, the stock option is presented as “Stock acquisition right” as a separate component ofequity until exercised.

Message fromManagement		 (c)	The revised accounting standard also made certain amendments relating to the method of
attributing expected benefit to periods and relating to the discount rate and expected futuresalary increases.
		 This accounting standard and the guidance for (a) and (b) above are effective for the end ofannual periods beginning on or after April 1, 2013, and for (c) above are effective for the starting ofannual periods beginning on or after April 1, 2014, or for the starting of annual periods beginning on
or after April 1, 2015, subject to certain disclosure in March 2015, both with earlier application being
permitted from the starting of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods
is required.
		 The Company applied the revised accounting standard and guidance for retirement benefits for (a)and (b) above, effective March 31, 2014. As a result, an asset for retirement benefits of ¥315 million($3,058 thousand) and a liability for retirement benefits of ¥643 million ($6,243 thousand) wererecorded. Accumulated other comprehensive income decreased by ¥238 million ($2,311 thousand)and minority interests increased by ¥14 million ($136 thousand).
		 Net asset value per share decreased by ¥6.99 ($0.07).

Notes to Consolidated Financial Statements

Corporate
Data

32

Financial
Sectionw.	Accounting Changes and Error Corrections—In December 2009, the ASBJ issued ASBJ
Statement No. 24, “Accounting Standard for Accounting Changes and Error Corrections” andASBJ Guidance No. 24, “Guidance on Accounting Standard for Accounting Changes and Error
Corrections.” Accounting treatments under this standard and guidance are as follows: (1) Changes
in Accounting Policies—When a new accounting policy is applied after revision of an accounting
standards, the new policy is applied retrospectively, unless the revised accounting standard
includes specific transitional provisions, in which case the entity shall comply with the specific transitional provisions. (2) Changes in Presentation—When the presentation of financial statements ischanged, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates—A change in an accounting estimate is accounted forManagement Discussion
and Analysisv.	Per Share Information—Basic net loss per share is computed by dividing net loss available tocommon shareholders by the weighted-average number of common shares outstanding for the period.
		 Diluted net income per share is not disclosed because it is antidilutive due to the Company’s net
loss position.
		 Cash dividends per share presented in the accompanying consolidated statement of operations are dividends applicable to the respective years, including dividends to be paid after the endof the year.

Corporate
Governanceu.	Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreignsubsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet
date, except for equity, which is translated at the historical rate.
		 Differences arising from such translation are shown as “Foreign currency translation adjustments”
under accumulated other comprehensive income (loss) as a separate component of equity.
		 Revenue and expense accounts of consolidated foreign subsidiaries are translated into Japanese
yen at the average exchange rate.

SocialActivities /Topicsx. New Accounting Pronouncements	Accounting Standard for Retirement Benefits—On May 17, 2012, the ASBJ issued ASBJ
Statement No. 26, and ASBJ Guidance No. 25, which replaced the Accounting Standard for
Retirement Benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial
amendments from time to time through 2009. Major changes are as follows:(a)	Treatment in the consolidated balance sheet		Under the current requirements, actuarial gains and losses and past service costs that are yet tobe recognized in profit or loss are not recognized in the consolidated balance sheet, and the difference between retirement benefit obligations and plan assets (hereinafter, “deficit or surplus”),
adjusted by such unrecognized amounts, is recognized as a liability or asset.
			 Under the revised accounting standard, actuarial gains and losses and past service costs thatare yet to be recognized in profit or loss shall be recognized within equity (accumulated othercomprehensive income), after adjusting for tax effects, and any resulting deficit or surplus shall berecognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).
(b)	Treatment in the consolidated statement of operations and the consolidated statement ofcomprehensive income
		The revised accounting standard does not change how to recognize actuarial gains and losses
and past service costs in profit or loss. Those amounts would be recognized in profit or loss overa certain period no longer than the expected average remaining service period of the employees.
However, actuarial gains and losses and past service costs that arose in the current period andhave not yet been recognized in profit or loss shall be included in other comprehensive income
and actuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period shall betreated as reclassification adjustments.
(c)	Amendments relating to the method of attributing expected benefit to periods and relating to
the discount rate and expected future salary increases
		The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected future salary
increases.
		 This accounting standard and the guidance for (a) and (b) above are effective for the end ofannual periods beginning on or after April 1, 2013, and for (c) above are effective for the starting ofannual periods beginning on or after April 1, 2014, or for the beginning of annual periods starting ont.	Foreign Currency Transactions—All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at the exchange rates at theconsolidated balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statement of operations to the extent that they are not hedged by forward
exchange contracts.

BusinessStrengthin the period of the change if the change affects that period only and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections ofPrior-Period Errors—When an error in prior-period financial statements is discovered, those statements are restated.

Message fromManagements.	Income Taxes—The provision for income taxes is computed based on the pretax income andincluded in the consolidated statement of operations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes aremeasured by applying currently enacted income tax rates to the temporary differences.

Notes to Consolidated Financial Statements

Inventories at March 31, 2014 and 2013, consisted of the following:(Thousands of
U.S. dollars)

March 31,

March 31,2014
¥31,666
1,182
16,428¥49,2762013¥34,547
2,096
18,998¥55,641

Business assets

Machinery, equipment, and vehicles, etc.

Business assets

Zhong Shan Funai Electron Co.
(Guangdong, China)

Machinery, equipment, and vehicles, etc.

During the year ended March 31, 2013, the Group recorded losses on impairment in the following
asset groups:

2014$307,437
11,476
159,495$478,408

Use

LocationType

Idle assets

FUNAI ELECTRIC CO., LTD.
(Daito City, Osaka)

Long-term prepaid expenses, etc.

33

Corporate
Data

The Company revised its production model in line with decreasing global demand. As a result, theGroup revalued its licensing of patents based on its expected future degree of use, thereby reducing the
expected amount collectible for these assets by ¥1,614 million. This impairment loss was recorded as
Other income (expense).
As the recoverable value of these assets is estimated as their value in use and no future cash flows
can be expected, their value in use has been reduced to zero.

Financial
SectionMerchandise and finished products
Work in process
Raw materials and supplies
Total(Millions of Japanese yen)

Type

Management Discussion
and Analysis

4. INVENTORIES

Location

Zhong Yue Funai Electron Co.
(Guangdong, China)

Corporate
GovernanceIn principle, the Group groups business assets on the basis of a legal entity whose cash inflows andoutflows are continuously recorded. Idle assets are separated individually.
As the prospects for future profitability are expected to worsen due to factors including a decrease inorders for information equipment during the fiscal year ended March 31, 2014, the Company reduced
the book value of manufacturing facilities, etc., to their recoverable amounts and recorded the decreasein value of ¥267 million ($2,592 thousand) as Other income (expense). The details of the losses are ¥202
million ($1,961 thousand) for machinery, equipment and other, and ¥65 million ($631 thousand) for longterm prepaid expenses.
The recoverable amounts of the assets were determined at net realizable value. The net realizablevalue of long-term prepaid expenses and assets other than long-term prepaid expenses is determinedat zero and reasonable estimates based on market value, respectively.

Prior to April 1, 2013, loss on investments in limited partnership – net was disclosed separately in theother income (expenses)-net section of the operations. During this fiscal year ended March 31, 2014,
the amount decreased significantly; as such, the amount is included in the other-net among the otherincome (expenses) section of the operations as of March 31, 2014. The amount included in other-net asof March 31, 2013, was ¥57 million.

Use

SocialActivities /Topics

3. CHANGE IN PRESENTATION

During the fiscal year ended March 31, 2014, the Group recorded losses on impairment in the following
asset groups:

BusinessStrength

5. LONG-LIVED ASSETS

Message fromManagement

or after April 1, 2015, subject to certain disclosure in March 2015, both with earlier application being
permitted from the starting of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods
is required.
		 The Company applied the revised accounting standard for (a) and (b) above effective March 31,
2014, and expects to apply (c) above from April 1, 2014, and is in the process of measuring theeffects of applying the revised accounting standard for (c) above in future applicable periods.

Notes to Consolidated Financial Statements

The costs and aggregate fair values of investment securities at March 31, 2014 and 2013, were as
follows:(Millions of Japanese yen)

Location

Type

Business assets

Zhong Yue Funai ElectronCo.(Guangdong, China)

Machinery, equipment, and vehicles, etc.

Business assets

Zhong Shan Funai ElectronCo.(Guangdong, China)

Machinery, equipment, and vehicles, etc.

Business assets

FUNAI Optical Electronics Co.,
Ltd.(Guangdong, China)

Machinery, equipment, and vehicles, etc.

Fair value¥1,157¥722¥ 6¥1,873

March 31, 2013
Securities classified as:
Available-for-sale:
Equity securities¥1,287¥453¥88¥1,652

Cost

Unrealized gains

Unrealized losses

Fair value$11,233$7,009$58$18,184(Thousands of U.S. dollars)

March 31, 2014
Securities classified as:
Available-for-sale:
Equity securities

Available-for-sale securities whose fair values are not readily determinable as of March 31, 2014 and2013, were as follows:

Available-for-sale:
Equity securities
Investments in limited partnerships
Total(Thousands of
U.S. dollars)

March 31,

March 31,

2014

2013

2014

¥252
323
¥575

¥ 957
291
¥1,248$2,447
3,136$5,583

Corporate
Data

7. ADVISORY FEES

(Millions of Japanese yen)

Financial
SectionIn principle, the Group groups business assets on the basis of a legal entity whose cash inflows andoutflows are continuously recorded. Idle assets are separated individually.
Mainly, as a result of the decision to downsize the overseas LED business, during the fiscal year
ended March 31, 2014, the Company reduced the book value of manufacturing facilities, etc., with noprospects of future use to their recoverable amount, and recorded the decrease in value of ¥393 million($3,816 thousand) as business structure improvement expenses under Other income (expense). The
details of the losses are ¥338 million ($3,282 thousand) for machinery, equipment, and other, and ¥55
million ($534 thousand) for long-term prepaid expenses.
The recoverable amounts of the assets were determined at net realizable value. The net realizablevalue of long-term prepaid expenses and assets other than long-term prepaid expenses is determinedat zero and reasonable estimates based on market value, respectively.

Management Discussion
and Analysis

Unrealized losses

March 31, 2014
Securities classified as:
Available-for-sale:
Equity securities

Corporate
Governance

Use

Unrealized gains

SocialActivities /Topics(Impairment losses)
During the fiscal year ended March 31, 2014, the Group recorded losses on impairment in the following
asset groups:

Cost

BusinessStrength

8. INVESTMENT SECURITIESBusiness structure improvement expenses were mainly expenses incurred due to shrinking of the overseas light emitting diode (hereinafter, “LED”) business, including an inventory valuation loss of ¥206 million($2,000 thousand), a loss on revaluation of investment in nonconsolidated subsidiaries and associatedcompanies of ¥652 million ($6,330 thousand) and impairment losses of ¥393 million ($3,816 thousand).

Message fromManagement

6. BUSINESS STRUCTURE IMPROVEMENT EXPENSES

Advisory fees were paid as specified compensation and fees to third-party advisors to determine anacquisition price for the intended acquisition of all shares in a company handling the LifestyleEntertainment Business of Philips. However, the Company recorded these compensation and fees as
expenses since Philips terminated the share purchase agreement and filed a petition for arbitration with
the International Chamber of Commerce, and the Company filed a counterclaim in this regard.

34

Notes to Consolidated Financial Statements

Proceeds

Realized gains

Realized losses

March 31, 2014
Available-for-sale:
Equity securities
Total

¥348
¥348

¥92
¥92

Realized gains

Realized losses

March 31,

March 31,

2014

2013

2014

Unsecured loans from banks andother financial institutions, due serially through 2019with average interest rates of 1.0% (2014):¥6,421¥$62,340

Obligations under finance leases
Total
Less current portionLong-term debt, less current portion

152¥6,573(388)¥6,185

310
¥ 310
(163)
¥ 147

1,476
$63,816(3,767)$60,049

Annual maturities of long-term debt, excluding finance leases (see Note 15), at March 31, 2014, wereas follows:Year ending March 31

2015
2016
2017
2018
2019
Total

The impairment losses on available-for-sale equity securities for the years ended March 31, 2014 and2013, were ¥513 million ($4,981 thousand) and ¥413 million, respectively.

(Millions ofJapanese yen)(Thousands of
U.S. dollars)

¥ 300
300
300
2,873
2,648
¥6,421$ 2,913
2,913
2,913
27,89325,708$62,340

Management Discussion
and Analysis

March 31, 2014
Available-for-sale:
Equity securities
Total(Thousands of
U.S. dollars)

Corporate
Governance(Thousands of U.S. dollars)
Proceeds(Millions of Japanese yen)SocialActivities /TopicsMarch 31, 2013
Available-for-sale:
Equity securities
Total

Long-term debt at March 31, 2014 and 2013, consisted of the following:

BusinessStrength

Short-term bank loans bore interest at an annual average rate of 1.6% at March 31, 2014 and 2013,
respectively.

(Millions of Japanese yen)

Message fromManagement

9. SHORT-TERM BANK LOANS AND LONG-TERM DEBT

The proceeds realized gains and realized losses of the available-for-sale securities, which were soldduring the years ended March 31, 2014 and 2013, were as follows:

Financial
SectionCorporate
Data

35

Notes to Consolidated Financial Statements(2) The changes in plan assets for the year ended March 31, 2014, were as follows:(Thousands of
U.S. dollars)

Plan assets
Funded defined benefit obligation
Net asset arising from defined benefit obligation¥ 7,288(6,952)¥ 336$ 70,757(67,495)$ 3,262

Funded defined benefit obligation
Plan assets
Net liability arising from defined benefit obligation¥(2,235)
1,459¥ (776)$(21,699)
14,165$ (7,534)(4) The components of net periodic benefit costs for the year ended March 31, 2014, were as follows:

36(Thousands of
U.S. dollars)

¥ 525
117
(92)
(109)
108
125
13
¥ 687

$ 5,097
1,136(893)(1,058)
1,048
1,214
126
$ 6,670

Corporate
Data

Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial losses
Amortization of transitional obligation
OthersNet periodic benefit costs(Millions ofJapanese yen)

Financial
Section$(89,883)(5,097)(1,136)
7,262
2,068(2,816)408$(89,194)(Millions ofJapanese yen)Management Discussion
and Analysis¥(9,258)
(525)
(117)
748
213
(290)
42
¥(9,187)$77,796893(7,262)
7,340
6,417
359
(621)
$84,922

Corporate
Governance

Balance at beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial losses
Increase in business combination
OthersBalance at end of year

(Thousands of
U.S. dollars)¥8,013
92
(748)
756
661
37
(64)
¥8,747(3) ‌Reconciliation between the liability recorded in the consolidated balance sheet and the balances ofdefined benefit obligation and plan assets at March 31, 2014, was as follows:Year Ended March 31, 2014
(1) The changes in defined benefit obligation for the year ended March 31, 2014, were as follows:(Millions ofJapanese yen)(Thousands of
U.S. dollars)SocialActivities /TopicsBalance at beginning of year
Expected return on plan assets
Benefits paid
Contributions from the employer
Actuarial gains
Increase in business combination
OthersBalance at end of year

(Millions ofJapanese yen)

BusinessStrength

The Company and certain consolidated subsidiaries have severance payment plans for employees,
directors, corporate auditors and executive officers. Under most circumstances, employees terminating
their employment are entitled to retirement benefits determined based on the rate of pay at the time oftermination, years of service and certain other factors. Such retirement benefits are made in the form of
a lump-sum severance payment from the Company or from certain consolidated subsidiaries and annuity payments from a trustee. Employees are entitled to larger payments if the termination is involuntary,by retirement at the mandatory retirement age, by death, or by voluntary retirement at certain specificages prior to the mandatory retirement age.
The Company and certain consolidated subsidiaries have noncontributory funded defined benefit
pension plans for employees. Certain consolidated foreign subsidiaries also have defined contribution
pension plans.
The liability for retirement benefits at March 31, 2014 and 2013, for directors, corporate auditors andexecutive officers is ¥1,088 million ($10,563 thousand) and ¥1,082 million, respectively. The retirement
benefits for directors and Audit & Supervisory Board members are paid subject to the approval by theshareholders.

Message fromManagement

10. RETIREMENT AND PENSION PLANS

Notes to Consolidated Financial Statements(Thousands of
U.S. dollars)¥(412)
452
232
¥ 272

$(4,000)
4,388
2,253
$ 2,641(Millions ofJapanese yen)

(6) Plan assets(a) Components of plan assets
		 Plan assets consisted of the following:

Assumptions used for the years ended March 31, 2013 are as follows:
51%
32%
2%
15%
100%

Discount rate
Expected rate of return on plan assets
Amortization period of prior service cost
Recognition period of actuarial gain/loss

11. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant
provisions in the Companies Act that affect financial and accounting matters are summarized below:(7) Assumptions used for the year ended March 31, 2014, were set forth as follows:
Discount rate
Expected rate of return on plan assets

Year Ended March 31, 2013
The liability for employees’ retirement benefits at March 31, 2013 consisted of the following:(Millions ofJapanese yen)

¥ 9,258(8,013)521(1,284)
(434)
879
¥ 927

37

Corporate
Data

Projected benefit obligation
Fair value of plan assets
Unrecognized prior service cost
Unrecognized actuarial loss
Unrecognized transitional obligation
Prepaid pension cost
Net liability

Financial
Section(a) Dividends	Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. For companies that meetcertain criteria, such as (1) having a Board of Directors, (2) having the independent auditors, (3)having a Board of Corporate Auditors and (4) the term of service of the directors is prescribed as one
year rather than two years of normal term by its articles of incorporation, the Board of Directors may
declare dividends (except for dividends in kind) at any time during the fiscal year if the Company hasprescribed so in its articles of incorporation. The Company meets all the above criteria.
		 Semiannual interim dividends may also be paid once a year upon resolution by the Board of
Directors if the articles of incorporation of the Company so stipulate. The Companies Act provides
certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net
assets after dividends must be maintained at no less than ¥3 million.

1.3%
1.2%

Management Discussion
and Analysis(b) Method of determining the expected rate of return on plan assets		The expected rate of return on plan assets is determined considering the long-term rates of returnthat are expected currently and in the future from the various components of the plan assets.

2013
1.1%–1.4%
1.1%–1.4%
10 years
10 years

Corporate
Governance

Debt investments
Equity investments
Cash and cash equivalents
Others
Total

¥ 473
155
(133)
(109)
185
125
¥ 696

SocialActivities /TopicsService cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial gain
Amortization of transitional obligation
Net periodic benefit costs

BusinessStrength

Unrecognized prior service cost
Unrecognized actuarial losses
Others
Total(Millions ofJapanese yen)

Message fromManagement

The components of net periodic benefit costs for the year ended March 31, 2013 are as follows:(5) Accumulated other comprehensive income on defined retirement benefit plans as of March 31, 2014,
was as follows:Notes to Consolidated Financial Statements

Stock option

2004
20 employees
stock option b 1 other person

25,600sharesAugust 13,
2004¥16,836 From August 1, 2006($163) to July 31, 20132005
stock option

2 directors
293 employees
5 other persons

346,400
sharesJuly 12, 2005

¥12,369 From August 1, 2007($120) to July 31, 2014

2008
stock option

1 director officer
431,700
10 executive officers
shares
315 employees

November 20,
2008¥1,609
($16)

¥384
($4)

From February 11, 2012
to February 10, 20192011
stock option

2 directors
39 employees

116,900
sharesMay 27, 2011

¥807
($8)

From May 27, 2013
to May 26, 2020

Exercise period

Year ended March 31, 2013
Nonvested
March 31, 2013 – Outstanding
GrantedCanceled
VestedMarch 31, 2014 – Outstanding
VestedMarch 31, 2013 – Outstanding
VestedExercised
Canceled
March 31, 2014 – Outstanding

From August 1, 2010
to July 31, 2017

38

2004
stock option a

2004
stock option b

2005
stock option

2008
stock option(Shares)(Shares)(Shares)(Shares)

359,900

25,600346,400

360,500

359,900

25,600346,400

30,100330,400

359,900

25,600346,400

330,400

359,900

25,600346,400

19,600310,800

Corporate
Data¥16,167 From August 1, 2006($157) to July 31, 2013

February 13,
2010

Financial
SectionJuly 21, 2004

152,000
sharesManagement Discussion
and Analysis

359,900
shares4 directors
29 employees

Corporate
Governance2 directors
2004
293 employees
stock option a
5 other persons

Exercise price

Exercise periodSocialActivities /TopicsDate of grant

Exercise priceBusinessStrength

The stock options outstanding as of March 31, 2014, are as follows:(The Company)
Number ofoptions granted

Date of grant2010
stock option

Year ended March 31, 2012
Nonvested
March 31, 2012 – Outstanding
GrantedCanceled
VestedMarch 31, 2013 – Outstanding
VestedMarch 31, 2012 – Outstanding
VestedExercised
Canceled
March 31, 2013 – Outstanding

12. STOCK OPTIONS

Persons granted

Number ofoptions granted

The stock option activity is as follows:(The Company)(c) Treasury Stock and Treasury Stock Acquisition Rights
	The Companies Act also provides for companies to purchase treasury stock and dispose of suchtreasury stock by resolution of the Board of Directors. The amount of treasury stock purchased
cannot exceed the amount available for distribution to the shareholders, which is determined using a
specific formula. Under the Companies Act, stock acquisition rights are presented as a separate
component of equity. The Companies Act also provides that companies can purchase both treasury
stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as aseparate component of equity or deducted directly from stock acquisition rights.

Stock option

Persons granted

Message fromManagement(DX ANTENNA CO., LTD.)(b) Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
	The Companies Act requires that an amount equal to 10% of dividends must be appropriated as alegal reserve (a component of retained earnings) or as additional paid-in capital (a component of
capital surplus) depending on the equity account charged upon the payment of such dividends, until
the aggregate amount of legal reserve and additional paid-in capital equals 25% of the common
stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may
be reversed without limitation. The Companies Act also provides that common stock, legal reserve,
additional paid-in capital, other capital surplus and retained earnings can be transferred among theaccounts under certain conditions upon resolution by the shareholders.

Notes to Consolidated Financial Statements

2005
stock option

2008
stock option(Shares)(Shares)(Shares)(Shares)¥16,167($157)¥16,836($163)¥12,369($120)¥1,609($16)(DX ANTENNA CO., LTD.)

Average stock price at exercise
Fair value price at grant date

From August 1, 2012 to July 31, 2017

¥454
($4)

From August 1, 2013 to July 31, 2017

¥458
($4)

From August 1, 2014 to July 31, 2017

¥475
($5)

From August 1, 2015 to July 31, 2017

¥487
($5)

From August 1, 2016 to July 31, 2017

¥510
($5)

Exercise price

111,300
17,50093,800146,500

24,000122,500

93,80093,800122,500
93,80014,000108,500

4,200
89,600

384
$(4)

807
$(8)

Financial
SectionYear ended March 31, 2013
Nonvested
March 31, 2013 – Outstanding
GrantedCanceled
VestedMarch 31, 2014 – Outstanding
VestedMarch 31, 2013 – Outstanding
VestedExercised
Canceled
March 31, 2014 – Outstanding(Shares)Management Discussion
and Analysis

From August 1, 2011 to July 31, 2017

¥447
($4)

(Shares)

Corporate
Governance

From August 1, 2010 to July 31, 2017

¥440
($4)

2011
stock option

SocialActivities /TopicsYear ended March 31, 2012
Nonvested
March 31, 2012 – Outstanding
GrantedCanceled
VestedMarch 31, 2013 – Outstanding
VestedMarch 31, 2012 – Outstanding
VestedExercised
Canceled
March 31, 2013 – Outstanding

2010
stock option

BusinessStrength

2004
stock option b

Message fromManagement

Exercise price2004
stock option a

Corporate
Data

39

Notes to Consolidated Financial Statements(Millions of Japanese yen)(Thousands of
U.S. dollars)

March 31,

March 31,

2014
¥ 768
2,013
¥2,781

2013
¥ 859
2,185
¥3,0442014$ 7,456
19,544$27,000

Financial
Section2014$ 11,942
100,262
14,31139
3,660Management Discussion
and Analysis

Promoting fee
Royalty on patents
Depreciation
Amortization of goodwill
Provision for accrued pension and severance costs

March 31,

2013
¥ 991
8,916
1,565
9
359

2014
$ 854
622
$1,476

Pro forma information for leased property whose lease inception was before March 31, 2008
ASBJ Statement No. 13 requires that all finance lease transactions be capitalized to recognize leaseassets and lease obligations in the consolidated balance sheets. However, ASBJ Statement No. 13 permits leases that do not transfer ownership of the leased property to the lessee and whose lease inception was before March 31, 2008, to be accounted for as operating lease transactions if certain “as if
capitalized” information is disclosed in the notes to the consolidated financial statements. The Company
applied ASBJ Statement No. 13 effective April 1, 2008 and continued to account for such leases as
operating lease transactions.

Selling, general and administrative expenses for the years ended March 31, 2014 and 2013, principallyconsisted of the following:

March 31,

March 31,

2013
¥163
147
¥310

Corporate
GovernanceDue within 1 year
Due after 1 year
Total

13. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

2014¥ 1,230
10,3271,474
4377

March 31,

2014
¥ 88
64
¥152

The minimum rental commitments under noncancelable operating leases at March 31, 2014 and 2013,
are as follows:(DX ANTENNA CO., LTD.)	Estimated number of vested options of DX ANTENNA CO., LTD. is determined based on the actual
cancellation data because the number of options canceled in the future cannot be reasonably
estimated.

(Thousands of
U.S. dollars)(Thousands of
U.S. dollars)SocialActivities /TopicsDue within 1 year
Due after 1 year
Total

(Millions of Japanese yen)

BusinessStrength

The Group leases certain machinery, computer equipment, office space and other assets.
Obligations under finance leases were as follows:

Estimated Method of Number of Vested Options(The Company)
Estimated number of vested options of the Company is determined based on historical data.

(Millions of Japanese yen)

Message fromManagement

15. LEASESThe Assumption Used to Measure Fair Value(DX ANTENNA CO., LTD.)
	On February 13, 2010 and May 27, 2011, DX ANTENNA CO., LTD., one of the subsidiaries, granted
stock options. As DX ANTENNA CO., LTD. was a nonpublic company, the fair unit value of the stock
options was measured at their intrinsic value.
		 The total intrinsic value of the stock options granted on February 13, 2010, for the year ended
March 31, 2013, was ¥63 million ($612 thousand). The total intrinsic value of the stock options
granted on May 27, 2011, for the year ended March 31, 2013, was ¥14 million ($136 thousand).

Corporate
Data

14. R&D COSTS
R&D costs charged to income were ¥8,491 million ($82,437 thousand) and ¥9,383 million for the years
ended March 31, 2014 and 2013, respectively.

40

Notes to Consolidated Financial Statements(Thousands of
U.S. dollars)

March 31,

March 31,

2014
¥12
12

2014
$117
117

(Millions of Japanese yen)(Thousands of
U.S. dollars)

March 31,

March 31,

2014
(Millions of Japanese yen)(Thousands of
U.S. dollars)

March 31,

March 31,2014
Due within 1 year
Due after 1 year
Total

2013
¥1

2014

¥1

(Millions of Japanese yen)

Depreciation expense
Interest expense
Total
Lease payments

2014
¥0
0
¥0
¥0

2013
¥10
0
¥10
¥10

(Thousands of
U.S. dollars)

2014
$0
0
$0
$0

625
1,476
3,843
381
423
817
9
11,501
1,608(18,040)¥ 2,643

¥

718
650
3,792
396
399
807
6
9,659
2,464
(15,885)¥ 3,006

$

¥

¥

$

369
120
403
¥
892
¥ 1,751

243
310
299
¥
852
¥ 2,154

6,068
14,33037,311
3,699
4,107
7,932
87
111,660
15,612(175,146)$ 25,660
3,582
1,165
3,913
$ 8,660$ 17,000

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflectedin the accompanying consolidated statement of operations for the years ended March 31, 2014 and2013, is not presented because of the net loss for the period.

41

Corporate
Data

On June 28, 2005 and June 16, 2008, the Company received notices of supplementary tax assessment
for additional tax on the income of its subsidiary in Hong Kong under the tax haven rules for the threefinancial years ended March 31, 2002 to March 31, 2004, and the three financial years ended March
31, 2005 to March 31, 2007, from the Osaka Regional Taxation Bureau, as the subsidiary in Hong Kong
did not satisfy the conditions for exemption from the application of tax haven rules. The Company has
contested the validity in court as the Company disagreed with this assessment and considered it to be

Financial
SectionDepreciation expense and interest expense, which are not reflected in the accompanying consolidated
statement of operations, are computed using the straight-line method and the interest method,respectively.

¥

Management Discussion
and Analysis

Depreciation expense, interest expense and other information under finance leases:

2014

Corporate
GovernanceDeferred tax assets:
Liability for retirement benefits
Accounts payable - other
Allowance for doubtful accounts
Accrued employees’ bonuses
Impairment loss on investment securities
Inventories
Intercompany profit
Tax loss carry-forwards
Other
Less valuation allowance
Total
Deferred tax liabilities:
Unrealized gain on available-for-sale securities
Prepaid pension cost
Other
Total
Net deferred tax assets

Obligations under finance leases:

2013

SocialActivities /Topics

2013
¥98
97
¥ 1

The Company and its domestic subsidiaries are subject to Japanese national and local income taxes,
which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 35.6% and38.0% for the years ended March 31, 2014 and 2013.
The tax effects of significant temporary differences and tax loss carry-forwards, which resulted indeferred tax assets and liabilities, at March 31, 2014 and 2013, were as follows:BusinessStrength

Acquisition cost
Accumulated depreciation
Net leased property(Millions of Japanese yen)

Message fromManagement

16. INCOME TAXESPro forma information for leased property whose lease inception is before March 31, 2014, was asfollows:

Notes to Consolidated Financial Statements

Corporate
GovernanceManagement Discussion
and Analysis
Financial
Section

2. Fair Value of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are
not available, another rational valuation technique is used instead. The list below does not contain financial instruments for which fair values are difficult to determine.

SocialActivities /Topics(2)	Nature and Extent of Risks Arising from Financial Instruments and Risk Management for
Financial Instruments
Receivables, such as trade notes and trade accounts, are exposed to customer credit risk.
		 To avoid such a risk, the Group sets up sales management regulations and determines trading
conditions and credit limit by each customer.
		 The Company has many receivables and payables based on foreign currencies due to its overseas operations. Basically, the Group does not make forward foreign currency contracts because of
its U.S. dollar-basis trading.
		 Investment securities, mainly equity instruments, are exposed to market risk. Marketable andinvestment securities are managed by monitoring market values and financial position of issuers on aregular basis. This risk should be reported to investment committee internally.
		 Payment terms of payables, such as trade notes and trade accounts, are less than one year.
		 Loans, both short term and long term, are financed for sales operations. Basically, derivatives are
not permitted. Although the variable interest rates of loans are exposed to market risks, those risks
may be mitigated by using interest rate swap derivatives. This derivative transaction should be executed and managed by corporate regulations. To decrease credit risks, the Group enters into relationships with highly rated financial institutions only.
		 Trade credit and loans are exposed to liquidity risks. The Group manages these risks by having
the associated companies make monthly financial plans.

BusinessStrength

1. Status of Financial Instruments(1) Group Policy for Financial Instruments
	The Group uses bank loans for fund-raising and short-term deposits to fund operations. The Group
does not use derivatives. In principle, derivatives are not permitted.

Message fromManagement

17. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

unacceptable. Therefore, the Company asked the Osaka National Tax Tribunal to examine the case on
July 25, 2006 and again on August 6, 2008. Thereafter, the Company received written verdicts on thiscase on July 3, 2008 and July 23, 2009, indicating that its assertions had been dismissed. The
Company brought a case for the cancellation of the notice to the Osaka District Court on November 16,
2006 and again on November 14, 2008 and these cases had been consolidated and held sinceNovember 26, 2008. The court dismissed the claims of the Company on June 24, 2011. Thereafter, as
the Company did not accept the Osaka District Court’s judgment, the Company filed a notice of appeal
with the Osaka High Court on July 7, 2011. With respect to this action, on July 20, 2012, the court dismissed the claims of the Company. The Company was unable to accept the judgment, filed appeal andan application for the acceptance of the appeal with the Supreme Court on August 1, 2012.
The additional tax assessments were ¥16,651 million (¥19,184 million, including incidental taxes) and¥15,038 million (¥16,838 million, including incidental taxes), including corporate income taxes, inhabitanttaxes and enterprise taxes. They were recognized as “INCOME TAXES – Prior years” for the fiscal years
ended March 31, 2007, and March 31, 2009, in accordance with Japanese Institute of Certified Public
Accountants (hereinafter, “JICPA”) Audit and Assurance Practice Committee Report No. 63, “Treatmentof Accounting and Presentation of Taxes for the Purpose of Audits”.
On June 29, 2011, the Company received notices of supplementary tax assessment for additional
tax on the income of its subsidiary in Hong Kong under the tax haven rules for the three financial years
ended March 31, 2008 to March 31, 2010, from the Osaka Regional Taxation Bureau, as the subsidiaryin Hong Kong did not satisfy the conditions for exemption from the application of tax haven rules. The
Company has contested the validity in court as the Company disagreed with this assessment and considered it to be unacceptable. Therefore, the Company asked the Osaka National Tax Tribunal to examine the case on August 25, 2011. On July 18, 2012, the Company received written verdicts on this caseindicating that its assertions had been dismissed. The Company, unable to accept the verdicts, filed an
appeal to have the action canceled with the Tokyo District Court on January 17, 2013.
The additional tax assessments were ¥825 million (¥935 million including incidental taxes), including
corporate income taxes, inhabitant taxes and enterprise taxes. They were recognized as“INCOME
TAXES – Prior years” for the year ended March 31, 2012.
The cases that were brought to the Osaka District Court by the Company on June 28, 2005 andJune 16, 2008, were dismissed on June 24, 2011. Accordingly, the Company has been accounting at
an amount that was estimated based on an assumption that the Company had been applying the tax
haven rules for expenses from the fiscal year ended March 31, 2011, which is the fiscal year following
the year when the assessment was applied, as an expense from the fiscal year ended March 31, 2012.

Corporate
Data

42

Notes to Consolidated Financial Statements(Millions of Japanese yen)March 31, 2013
Cash and cash equivalents
Time deposits
Receivables trade
Investment securities
Total
Short-term bank loans (excluding finance lease obligation)
Payables trade
Payables otherTotal¥ 50,238
17,57533,194
1,652¥102,659¥ 12,982
39,17911,124¥ 63,285¥ 50,238
17,57533,194
1,652¥102,659¥ 12,982
39,17911,124¥ 63,285

Investment securities
Investment securities are measured at the quoted market prices on the stock exchange for the equity
instruments.
Liabilities
Short-term bank loans, payables trade and payables other
The carrying value of short-term bank loans and payables approximates fair value because of their shortmaturities.
Long-term debt
The carrying value of long-term debt approximates the fair value because loans based on floating rates
reflect market interest rates over a short period of time, as long as the credit standing of the Group does
not change significantly from the time of borrowing.
Derivatives
Not applicable because derivatives are not permitted.
(b) Financial instruments whose fair values cannot be reliably determined(Thousands of U.S. dollars)$423,427
53,932365,845
18,184$861,388$ 43,942
319,825
112,350
59,427$535,544$423,427
53,932365,845
18,184$861,388$ 43,942
319,825
112,350
59,427$535,544

Unrealized gain/loss

Investments in equity instruments andinvestment in limited partnerships that do not have aquoted market price in an active market

March 31,

March 31,

2014

2013

2014

¥575

¥1,248$5,583

Corporate
Data

Fair value(Thousands of
U.S. dollars)

Financial
SectionMarch 31, 2014
Cash and cash equivalents
Time deposits
Receivables trade
Investment securities
Total
Short-term bank loans (excluding finance lease obligation)
Payables trade
Payables other
Long-term debt (excluding finance lease obligation)
Total

Carrying amount(Millions of Japanese yen)Management Discussion
and Analysis¥43,613
5,555
37,682
1,873¥88,723¥ 4,526
32,942
11,572
6,121¥55,161

Corporate
Governance¥43,613
5,555
37,682
1,873¥88,723¥ 4,526
32,942
11,572
6,121¥55,161

Unrealized gain/loss

SocialActivities /TopicsFair value

BusinessStrength

Carrying amountMarch 31, 2014
Cash and cash equivalents
Time deposits
Receivables trade
Investment securities
Total
Short-term bank loans (excluding finance lease obligation)
Payables trade
Payables other
Long-term debt (excluding finance lease obligation)
Total

Message fromManagement

AssetsCash and cash equivalents, time deposits and receivables trade
The carrying values of cash and cash equivalents, time deposits and trade receivables approximate fairvalues because of their short maturities.

(a) Fair value of financial instruments

43

Notes to Consolidated Financial Statements(Millions of Japanese yen)March 31, 2013
Cash and cash equivalents
Time deposits
Receivables trade
Total¥ 50,238
17,57533,194¥101,007

The components of other comprehensive income for the years ended March 31, 2014 and 2013, wereas follows:

Due after 10 years(Thousands of U.S. dollars)
Due in 1 year
or less

Due after 5 years
through 10 years

Due after 10 years$423,427
53,932365,845$843,204(Thousands of
U.S. dollars)

March 31,

March 31,

2013

2014

Unrealized gain on available-for-sale securities:
Gain arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total

¥ 262
87
349
(125)
¥ 224

¥ 201
413
614
(218)
¥ 396

$ 2,544844
3,388(1,213)$ 2,175

Foreign currency translation adjustments:
Adjustments arising during the year
Amount before income tax effect
Income tax effectTotal¥4,1634,163
6¥4,169¥7,1907,190$40,418
40,41858$40,476

Defined retirement benefit plans:
Adjustments arising during the year
Amount before income tax effect
Income tax effect
Total

¥ 142
142
(7)
¥ 135

Share of other comprehensive income in associates:
Gain arising during the year
Total
Total other comprehensive income

¥ 58
¥ 58
¥4,586¥7,190$ 1,378
1,378(68)$ 1,310

Please see Note 15 for obligations under finance leases.
¥ 33
¥ 33
¥7,619$ 563$ 563$44,524

Financial
Section2014

Management Discussion
and Analysis

March 31, 2014
Cash and cash equivalents
Time deposits
Receivables trade
Total

Due after 1 year
through 5 years(Millions of Japanese yen)

Corporate
Governance¥43,613
5,555
37,682¥86,850

Due after 5 years
through 10 years

SocialActivities /TopicsMarch 31, 2014
Cash and cash equivalents
Time deposits
Receivables trade
Total

Due after 1 year
through 5 years

BusinessStrength

Due in 1 year
or less

Message fromManagement

18. COMPREHENSIVE INCOME(c) Maturity analysis for financial assets and securities with contractual maturities

Corporate
Data

44

Notes to Consolidated Financial Statements

Net Loss

Weighted-Average
Shares¥(6,745)

34,119Japanese yen

Dollars
EPS¥(197.70)(2) Period of operating results of the acquired business included in the consolidated financial statements
From May 1, 2013 to March 31, 2014$(1.92)(3) Amount and breakdown of the acquisition cost¥(8,543)

34,119Consideration for the acquisition:
Expenses directly associated with the acquisition
Acquisition cost¥(250.38)

Diluted net income per share in 2014 and 2013 is not disclosed due to the loss positions.

Cash
Advisory fees, etc.

(Millions ofJapanese yen)(Thousands of
U.S. dollars)¥10,037242¥10,279$97,447
2,349$99,796

20. BUSINESS COMBINATIONSCurrent assets
Fixed assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities(Millions ofJapanese yen)(Thousands of
U.S. dollars)

¥

$

544
10,398
10,942
402
253
¥ 655

5,282
100,951
106,233
3,903
2,456$ 6,359

Financial
SectionBusiness Combination through Acquisition(1) Outline of the business combination(a) Counterparty and business acquired:		 Name of the counterparty: Lexmark International, Inc. (hereinafter, “Lexmark”)
		 Business acquired: Inkjet-related technologies and assets, including patents(b) Main reason for the business combination:
		As a contract manufacturer, the Company has supplied inkjet printer hardware to Lexmark since
July 1997. The Company has worked closely with Lexmark for around 16 years in developing
printer hardware and has established a strong relationship with Lexmark.
			 The acquisition of the patents for printer-related products, including ink cartridges that havelong been marketed by Lexmark globally (specifically, in North America), as well as productdeveloping functions and technologies and manufacturing functions and technologies, enables
the Company to start and grow its own inkjet business, including manufacture and sale of more
profitable ink cartridges, rather than as a contract manufacturer of printer products, by utilizing
the strong inkjet business platform that Lexmark has spent years establishing. As a result, theCompany believes the Group will be able to sustainably expand its business going forward.
(c) Date of the business combination:
		 April 30, 2013

Management Discussion
and Analysis(4) Amount of gain on bargain purchase generated and the reason for recognition(a) Amount of gain on bargain purchase generated: ¥8 million(b) Reason for recognition:
		As the net amount of acquired assets and assumed liabilities exceeded the acquisition cost, thedifference was recorded as a gain on bargain purchase.
(c) Amount and breakdown of the assets acquired and the liabilities assumed at the acquisition date

Corporate
GovernanceFor the year ended March 31, 2013:
Basic EPS
Net loss available tocommon shareholders

Thousands ofSharesSocialActivities /TopicsFor the year ended March 31, 2014:
Basic EPS
Net loss available tocommon shareholders

Millions ofJapanese yen

BusinessStrength(d) Legal form of the business combination:		Acquisition of patents and development facilities and acquisition of shares in a manufacturingsubsidiary(e) Name of the manufacturing subsidiary after business combination:
		 Funai Electric Cebu, Inc.
(f) Ratio of voting rights acquired: 100%

Information on basic net loss per share (“EPS”) for the years ended March 31, 2014 and 2013, was asfollows:

Message fromManagement

19. NET INCOME PER SHARE

Corporate
Data45

Notes to Consolidated Financial Statements

Year-end cash dividends, ¥35 ($0.34) per share(Millions ofJapanese yen)(Thousands of
U.S. dollars)¥1,194$11,592

22. CONTINGENT LIALIBITIESCorporate
Data

46

Financial
SectionThe following is an outline of the petition for arbitration filed against the Company and the counterclaim
filed by the Company:(1) Outline of the petition for arbitration filed against the Company(a) Institution and date of the petition for arbitration:		 ( i ) Institution with which the petition for arbitration was filed: International Chamber of Commerce		 (ii) Date of the petition for arbitration: October 25, 2013(b) Petitioner for arbitration:		 ( i ) Name: Koninklijke Philips N.V.
		 (ii) Location: Eindhoven, The Netherlands
		 (iii) Title and name of representative: Chief Executive Officer, Frans van Houten

Management Discussion
and Analysis

		 An overview of the above-mentioned share purchase agreement is as follows:		 1. Name of the other party and the content of the business to be acquired			 (1) Name of the other party: Koninklijke Philips N.V.
			 (2) Content of the business to be acquired: Lifestyle Entertainment Business			 (Note) The Lifestyle Entertainment Business involves the development, design, sales and (partial) manufacture of the Philips-brand Audio, Video, and Multimedia products; Home
Communication products; and Accessories products.
		 2. Reasons for acquiring the shares			In September 2008, the Company entered into a brand licensing agreement maintaining responsibility for the sourcing, distribution, marketing, and sales activities of Philips consumer televisions in the United States and Canada. Following this, in July 2012, the Company entered into
an agreement with Philips involving the sale in the United States, Canada, and Mexico of products that Philips designed and developed through the Lifestyle Entertainment Business.
				 The Company has positioned “strengthening and expanding existing businesses,” “making
forays into new markets,” and “developing new businesses” as the three pillars of its growthstrategy. To achieve this growth strategy, in addition to reinforcing its existing management
resources, the Company has searched for growth opportunities through business alliances

Corporate
Governance(Arbitration)
The Company resolved to acquire from Philips all shares in a company that would succeed the operationof Philips’ Lifestyle Entertainment Business and concluded a share purchase agreement on January 29,
2013. However, Philips filed against the Company a petition as of October 25, 2013, for arbitration to claim
compensation for damages on the grounds of breach of the agreement by the Company and the petition
was served on the Company by the International Chamber of Commerce on November 8, 2013.
With regard to this matter, the Company recognizes that there was no breach of the agreement on
its part. Consequently, on December 6, 2013, the Company filed with the International Chamber ofCommerce a counterclaim for claiming compensation for damages on the grounds of breach of theagreement and undue action by Philips.
On May 20, 2014, the Company was given notice of a compensation for damages Philips brought
forward against the Company in the amount of 171.8 million, as well as statutory interest thereon andarbitration expenses.
The results of these arbitration proceedings may have an effect on the operating results of theGroup. However, it is not possible to make a reasonable estimate of the effect of the arbitration proceedings as of the end of the fiscal year and the effect thereof, if any, on the operating results, and thefinancial position of the Group remains unclear.

SocialActivities /Topics(2) Outline of the counterclaim filed by the Company(a) Institution with which the counterclaim was filed and the date thereof:		 ( i ) Institution with which the counterclaim was filed: International Chamber of Commerce		 (ii) Date of the counterclaim: December 6, 2013(b) Party to the counterclaim filed:		 ( i ) Name: Koninklijke Philips N.V.
		 (ii) Location: Eindhoven, The Netherlands
		 (iii) Title and name of representative: Chief Executive Officer, Frans van Houten(c) Details of the counterclaim and claimed amount for damages:		 ( i ) Details of the counterclaim:
			 Claim for damages on the grounds of breach of the agreement and undue action by Philips
		(ii) Claimed amount:			A specific claimed amount has not been stipulated. The Company was instructed by the arbitration court to calculate the amount of damages incurred by the Company and bring forward
a claimed amount against Philips no later than October 2014.

BusinessStrength(c) Details of the petition and claimed amount for damages:		 ( i )	Details of the petition: A claim for damages on the grounds of breach of the agreementby the Company
		(ii) Claimed amount: 171.8 million, statutory interest thereon and arbitration expenses

Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2014 was approved at the meeting of theCompany’s Board of Directors held on May 26, 2014:

Message fromManagement

21. SUBSEQUENT EVENT

Notes to Consolidated Financial Statements

Financial
Section(2)	Methods of Measurement for the Amounts of Sales, Profit (Loss), Assets and Other Items for
Each Reportable Segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2,“Summary of Significant Accounting Policies.” Intersegment sales are based on arm’s-length price.

Management Discussion
and Analysis(Clauses)(1)	The Company shall maintain the amount of the equity section in the consolidated balance sheet asof the end of each fiscal year at no less than ¥100 billion.
(2)	The Company shall, for two consecutive fiscal years, not report an operating loss in the consolidated
statement of operations for the fiscal year ending March 31, 2015, and for each fiscal year
thereafter.
(3)	The Company shall, for two consecutive fiscal years, not report an ordinary loss in the consolidated
statement of operations for the fiscal year ending March 31, 2015, and for each fiscal year
thereafter.

Corporate
Governance(1) Description of Reportable Segments
The Group’s reportable segments are those for which separate financial information is available andregular evaluation by the Company’s management is being performed in order to decide how resources
are allocated among the Group. The Group is engaged in the manufacture and sale of consumer electronics products. The reportable segments of the Group are composed of four segments: “Japan,” “North
America,” “Asia” and “Europe,” which consist of geographic segments based on the manufacturing andsales operations.
Those areas, Japan, North America, Asia and Europe, are mainly covered by the Company and DX
ANTENNA CO., LTD., FUNAI CORPORATION, INC. and P&F USA, INC., FUNAI ELECTRIC (H.K.) LTD.
and FUNAI ELECTRIC EUROPE Sp.zo.o., respectively. Each local entity sets up and carries out its own
strategy as a single business unit.

SocialActivities /Topics(Financial covenants)
With regard to bank loans, a syndicated loan agreement (balance as of the end of the fiscal year: ¥5,146
million) includes financial covenants; if the Company breaches any of the following clauses, it shall forfeit
the benefit of time in relation to the entire obligation under the agreement and immediately pay the principal of and interest on the loan:

BusinessStrength

Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures” and ASBJ
Guidance No. 20, “Guidance on Accounting Standard for Segment Information Disclosures,” an entity isrequired to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria.
Operating segments are components of an entity about which separate financial information is available
and such information is evaluated regularly by the chief operating decision maker in deciding how toallocate resources and in assessing performance. Generally, segment information is required to bereported on the same basis as is used internally for evaluating operating segment performance anddeciding how to allocate resources to operating segments.

Message fromManagement

23. SEGMENT INFORMATION

and merger and acquisition activities with other companies, such as those outlined above.
				 The transaction to assume the Lifestyle Entertainment Business from Philips will enable theGroup to expand the lineup of products that it handles and expand its sales region to include
Asia, South America, and other emerging markets, as well as advanced countries in Europe.
The Company decided to acquire the shares, based on the belief that the acquisition would
foster sustained growth of the Group’s business.
		 3. Acquisition price and the percentage of shares held after the acquisition
			Acquisition price: 150 million
			 Percentage of shares held after the acquisition: 100%

Corporate
Data

47

Notes to Consolidated Financial Statements
Message fromManagement(3) Information about Sales, Profit (Loss), Assets and Other Items(Millions of Japanese yen)

2014
Total

Reconciliations(Note 1)

4,563
148,674¥153,237¥
408¥ 70,795¥3,2871¥3,288¥ (425)¥3,392¥234,043
284,241¥518,284¥ (5,131)¥265,979¥(284,241)¥(284,241)¥(335)¥ (84,638)¥234,043¥ (5,466)¥181,341

¥

¥

¥

¥

¥

¥ 56,494
135,566¥192,060¥ (1,328)¥129,870¥169,699
0¥169,699¥ (3,786)¥ 61,922

¥

¥

¥

47

4,318
196
4,178
660

254

83

16

6,481
3
226
9,914
660

(1)

¥234,043

(54)

6,480
3
226
9,860
660

Corporate
Governance

2,033
3
30
5,466

Consolidated

SocialActivities /TopicsEuropeNorth America

BusinessStrength

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment (loss) profit (Note 2)
Segment assets
Other
Depreciation
Amortization of goodwill
Investment in equity method affiliate
Increase in property, plant and equipment and intangible assets
Impairment losses of assets

Asia

Japan

(Millions of Japanese yen)

Total

Reconciliations(Note 1)

812
133,492¥134,304¥(491)¥ 66,697¥3,3530¥3,353¥ (390)¥4,382¥192,008
254,355¥446,363¥ (3,647)¥235,316¥(254,355)¥(254,355)¥ (1,626)¥ (40,792)

¥

¥

¥

¥ 51,678
120,863¥172,541¥ (4,295)¥108,875¥136,165
0¥136,165¥ 1,529¥ 55,362

¥

¥

¥

1,797
9
71
1,318
1,614

87

38

3,320
222
4,373

61

5

5,265
9
293
5,734
1,614

Consolidated¥192,008¥192,008¥ (5,273)¥194,524
¥

(5)

5,265
9
293
5,729
1,614

Corporate
Data

48

EuropeNorth America

Financial
Section

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment (loss) profit (Note 2)
Segment assets
Other
Depreciation
Amortization of goodwill
Investment in equity method affiliate
Increase in property, plant and equipment and intangible assets
Impairment losses of assets

Asia

Japan

Management Discussion
and Analysis

2013Notes to Consolidated Financial Statements
Message fromManagement(Thousands of U.S. dollars)

2014
Reconciliations(Note 1)

$1,647,563
0$1,647,563$ (36,757)$ 601,184

44,301
1,443,437$1,487,738$
3,961$ 687,330$31,9139$31,922$ (4,126)$32,932$2,272,262
2,759,621$5,031,883$ (49,815)$2,582,320$(2,759,621)$(2,759,621)$(3,253)$ (821,728)$2,272,262$ (53,068)$1,760,592

$

$

$

$

$

$

$ 548,485
1,316,175$1,864,660$ (12,893)$1,260,874$

19,73829291
53,068456

2,466

41,922
1,903
40,563
6,408

806

155

62,92229
2,194
96,2526,408(9)$2,272,262(524)

62,91329
2,194
95,728
6,408(Millions of Japanese yen)(Thousands of
U.S. dollars)

March 31,

March 31,2014
¥1,071(839)(567)¥ (335)

2013
¥
(1)
(886)
(739)
¥(1,626)(4) Related Information
1. Information about products and services
Information about each product and service

2014$10,398(8,146)(5,505)$ (3,253)(Millions of Japanese yen)

2014

March 31,

March 31,2013
¥ 37,615(1,698)(76,709)¥(40,792)

Other

Total

¥183,108¥18,876¥32,059¥234,043(Millions of Japanese yen)

2013

2014
$ 204,631(21,990)
3,058(1,007,427)$ (821,728)

Sales to external customers

Audiovisualequipment

Informationequipment

Other

Total

¥155,686¥11,966¥24,356¥192,008(Thousands of U.S. dollars)

2014(*1) Company-wide expenses are mainly general and administrative expenses not attributable to any reportable segments.
(*2) ‌Company-wide assets mainly consist of cash surpluses (cash and deposits) and long-term investments (investment securities, etc.) that are not attributable to any reportable segment.

Sales to external customers

49

Audiovisualequipment

Informationequipment

Other

Total

$1,777,748$183,262$311,252$2,272,262

Corporate
Data

2014
¥ 21,077(2,265)315(103,765)¥ (84,638)

Informationequipment

Financial
Section(Millions of Japanese yen)(Thousands of
U.S. dollars)

Audiovisualequipment

Management Discussion
and Analysis

Note 2 ‌Segment profit (loss) is adjusted to operating income in the consolidated statement ofoperations.

Sales to external customers

Segment assets
Company-wide assets(*2)
Adjustment of inventory
Assets for retirement benefits
Elimination of intersegment assets and liabilities, etc.
Total

$

Consolidated

Corporate
Governance

Segment profit (loss)
Elimination of intersegment transactions
Company-wide expenses(*1)
Adjustment of inventory
Total

Total

SocialActivities /Topics

Note 1 Components of reconciliation are as follows:
Note 1

EuropeNorth America

BusinessStrength

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment (loss) profit (Note 2)
Segment assets
Other
Depreciation
Amortization of goodwill
Investment in equity method affiliate
Increase in property, plant and equipment and intangible assets
Impairment losses of assets

Asia

Japan

Notes to Consolidated Financial Statements
Message fromManagement

3. Information about major customer
Sales(Thousands of
U.S. dollars)(Millions of Japanese yen)

(Millions of Japanese yen)

Name of Customer

2014

WAL-MART STORES, INC.

North America
Japan

USA

Other

Asia

Europe

Other

Total

¥38,110¥154,737¥6,505¥2,635¥7,736¥24,320¥234,043

2014¥121,5302013¥93,918

2014$1,179,903

Related segment nameNorth America(5) Goodwill by reportable segment
2014(Millions of Japanese yen)
Japan

2013
Amortization of goodwill
Goodwill at March 31, 2014

North America
Other

Asia

Europe

Other

Total

¥35,865¥127,327¥5,982¥3,542¥6,201¥13,091¥192,008

Asia

EuropeElimination

¥3
1

Total

¥3
1
(Millions of Japanese yen)

2013

(Thousands of U.S. dollars)

2014

Japan

North America
USA

Other

Asia

Europe

Other

Total

$370,000$1,502,301$63,155$25,583$75,107$236,116$2,272,262

Asia

EuropeElimination

¥9
4

Total

¥9
4
(Thousands of U.S. dollars)b. Property, plant and equipment

2014(Millions of Japanese yen)

Japan

2014
Amortization of goodwill
Goodwill at March 31, 2014

Asia
North America

Philippines

Thailand

Other

Europe

Total

¥116

¥6,668¥2,664¥1,076¥1,594¥21,905

Asia

EuropeElimination

Total

$29
10

Financial
SectionJapan¥9,787

$29
10

North
AmericaManagement Discussion
and Analysis

Japan

Amortization of goodwill
Goodwill at March 31, 2013

North
America

Corporate
Governance

USA

North
America

SocialActivities /Topics(Millions of Japanese yen)

Japan

BusinessStrength

2. Information about geographical areasa. SalesNote: Sales are classified by country or region based on the location of customers.

(Millions of Japanese yen)

2013
Asia
North America

Philippines

Thailand

Other

EuropeTotal¥9,694¥96¥1,028¥2,439¥1,971¥1,448¥16,676

Corporate
Data

Japan

(Thousands of U.S. dollars)

2014
Asia
Japan

North America

Philippines

Thailand

Other

EuropeTotal$95,019$1,126$64,738$25,864$10,447$15,476$212,670
50

Independent Auditors’ Report

Message fromManagement

BusinessStrength

SocialActivities /TopicsCorporate
GovernanceManagement Discussion
and Analysis
Financial
SectionCorporate
Data

51

Corporate Data
Message fromManagement

History

2000

	FUNAI ELECTRIC CO., LTD. established in Osaka, capitalized at ¥20 million.

	Listed on the First Section of the Tokyo Stock Exchange and Osaka Securities Exchange.

1962

2001

Representative office established in Chicago,United States.

	Acquired stocks of DX ANTENNA CO., LTD.

1964

BusinessStrength

1961

2003
	FUNAI (THAILAND) CO., LTD. established as a production subsidiary in Thailand.
	Huang Jiang Plant started operation as a consignment production plant in China.

1968

2004

	FUNAI ELECTRIC COMPANY OF TAIWAN established as a production subsidiary in Taiwan.
	Construction of new headquarters building completed in the city of Daito, Osaka.

2006

1970

	FUNAI ELECTRIC (POLSKA) Sp. z o.o. (now a sales subsidiary, FUNAI ELECTRIC EUROPE
Sp. z o.o.) established as a production subsidiary in Poland.

	FUNAI AMERICA ELECTRIC SERVICE CORP. established in the United States as a sales
subsidiary.

Corporate
Governance	FUNAI ELECTRIC ADVANCED APPLIED TECHNOLOGY RESEARCH INSTITUTE INC.
established.

1969

SocialActivities /Topics	CHUGOKU FUNAI ELECTRIC CO., LTD. established as a production subsidiary in
Hiroshima Prefecture.

2007
	FUNAI SERVICE CORPORATION established as a service subsidiary in the United States.

	Training started which formed the basis for establishing the Funai Production System (FPS).

2008

1980

	P&F USA, Inc. established in the United States as a sales subsidiary for Philips-brand products.

	FUNAI ELECTRIC TRADING (EUROPE) GmbH established in Germany as a sales subsidiary.

	Founder Tetsuro Funai assumed post of chairman, Tomonori Hayashi became President and CEO.

1983

2009

Tokyo Branch Office opened.

	P&F MEXICANA, S.A. DE C.V. established in Mexico as a sales subsidiary for Philips-brandproducts.

1987

2012

1989

	Funai India Private Limited established as a sales subsidiary in India.
	Zhong Shan Funai Electron Co. established as a production subsidiary in China.

	FUNAI ELECTRIC (MALAYSIA) SDN. BHD. established as a production subsidiary in Malaysia.

Financial
Section	FUNAI AMSTRAD LIMITED established as a production joint venture in U.K.

Management Discussion
and Analysis

1977

2013

1991
1992

2014

	HIGHSONIC INDUSTRIAL LTD. (now FUNAI ELECTRIC (H.K.), LTD.) established in Hong Kong.

Yoshikazu Uemura became President and CEO.

1996
	FUNAI SERVICE CO., LTD. established as a domestic service subsidiary.

1999
	Listed on the Second Section of the Osaka Securities Exchange.
52

Corporate
Data	FUNAI ELECTRIC CEBU, INC. (formerly, Lexmark International (Philippines), Inc.) acquired
from Lexmark.

	FUNAI CORPORATION, INC. established as a sales subsidiary in the United States.

Corporate Data

Established

August 1961

Head Office

Executives
Officers

Chairman. . . . . . . . . . . . . . . . . . . . Tetsuro Funai

Officer.. . . . . . . . . . . . . Hideaki Funakoshi

7-7-1 Nakagaito, Daito,
Osaka 574-0013

Vice Chairman. . . . . . . . . . . . . . . Tomonori Hayashi

Officer.. . . . . . . . . . . . . Kazuo Uga

President and CEO. . . . . . . . . . . Yoshikazu Uemura

Officer.. . . . . . . . . . . . . Takeshi Ito

TEL+81-72-870-4303

Director and Officer. . . . . . . . . . . Jyoji Okada

Officer.. . . . . . . . . . . . . Kiyoshi Chinzei

FAX+81-72-871-1112

Director and Officer. . . . . . . . . . . Tetsuhiro Maeda
Outside Director. . . . . . . . . . . . . . Mitsuo Yonemoto

Head OfficeOutside Director. . . . . . . . . . . . . . Yoshiaki Bannai

http//www.funai.jp/en/

Capital¥31,307 million(as of March 31, 2014)

Corporate Auditors

Employees

953 (as of March 31, 2014)

Full-Time Corporate Auditor.. . . Hiromu Ishizaki

Electrical Equipment

Outside Corporate Auditor. . . . . Masahide Morimoto(non-consolidated)

Business
Category

Outside Corporate Auditor. . . . . Shinichi Komeda

Display Business		 LCD TVs
Digital Media Business		 Blu-ray Disc Players/Recorders
Office Solutions Business		Printers
		 Ink Cartridges
Other Businesses

		Antennas

53

Corporate
Data*2:	Exclusive licensee for Magnavox consumer TVs, DVD/BD-related products and home theaterin North America

		 Audio Accessories

Financial
SectionImportant Contracts*1:	Exclusive licensee for Philips consumer TVs in North America, Mexico and select LATAM
countries. Exclusive licensee for Philips hospitality TVs in North America. Exclusive licensee forPhilips DVD/BD-related products and home theater in North America and Mexico.
		 P&F USA Inc. is the distributor for Philips-branded audio and video consumer
products, including home and portable audio products, headphones, portable DVD andother accessories.

		 DVD Players/Recorders

Management Discussion
and Analysis

Principal Businesses

Corporate
Governance

URL

SocialActivities /TopicsMembers of the Board

BusinessStrength

FUNAI ELECTRIC CO., LTD.

Message fromManagementName7-7-1 Nakagaito, Daito, Osaka 574-0013
TEL +81-72-870-4303 FAX +81-72-871-1112
http://www.funai.jp/en/

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